According to Coase, why do firms exist?

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Expert Solution

Ronald Coase, a british economist suggested the importance and reasons of different "Firms" existing within an economy. According to him a producer can sell his goods directly in an open market but every market is not favourable for every good.

A firm can add more workforce, diversify and expand its business through catering more and more services in the market as long as the process runs in a cost-effective manner and yields profit.

A firm can introduce/advertise its goods and sevices in a better manner to attract the potential customers.

A firm is capable of inventing and discovering new methodologies and techniques of production according to the conditions of the market and economy as well.

The management of a firm strives to manage all internal and external chores of a business process, if well planned and organized.

Thus, a firm's existence is important so as to discover the favourable market, consumers and workers all of which reduces the overall transaction costs and makes the process much easier and cost-effective too.

Rahul Sunny answered 1 year ago

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