ECON1020 Lecture Notes - Lecture 11: Perfect Competition, Trade Secret, Transaction Cost
Document Summary
Definition: the firm is a planning unit which produces goods (outputs) using factors of production (inputs) for financial return (lecture 7). Firms are evolving hierarchies of procedures to process information. Firms are coalition of stakeholders with different, conflicting objectives. Firms are bundles of resources of different quality which determine their success which differs between firms and over time. Firms make a number of products at different stages of the production process. Firms are command-and-control mechanisms that internalise market transactions. Vertical chain: all steps that need to be carried out in order to produce a good or service. Definition: transaction costs are the costs of using the market, i. e. the costs that parties incur in the process of agreeing and following through on an exchange. Transactions involve: identifying trading partners: negotiating contracts, monitoring compliance, enforcing fulfilment. Definition: when the firm expands its vertical boundary. Definition: when the firm expands its horizontal boundary.
