Explain Transaction Cost Analysis.

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Answer -

Transaction cost analysis is also known as transaction cost theory.It is widely accepted analysis in economics, marketing, management.This analysis focuses on how firms organise their transactions.In organising transaction some rules are followed known as governance.Various business decesions like strategy of exports, outsourcing, selection of partners etc.can be studied under transaction cost analysis.

The basic assumption of this analysis is that firms choose such form of governance that results in minimises the cost of production and transaction costs and maximize profitability.Transaction cost refers to the cost of providing some commodity or service through the market rather than having it provided within the firm.It includes cost of searching the best supplier,partner. Uncertainty and frequency are main characteristics of transaction cost analysis.

When transaction cost decreases an economy becomes more efficient and more factors of production are utilised to produce wealth.

Rahul Sunny answered 8 months ago

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