Question

tnc, producing and sells agricultural machines in the world. now the market demand for food thus this MNC's products is predictable and high. on the Williamson / Coase transaction theory, what should TNC do: get the inputs from the market or make the product itself? explain your answer based on the theory

multinational company, produces and sells agricultural machines in the world. The company does not need any special parts/materials for production, and these can be easily used by other agricultural companies to produce their products. In addition, there are lots of suppliers who can produce the necessary components, inputs in order to produce the co end product. now the market demand for food thus this MNC's products is predictable

Answer 1

The main concept of coases transaction costs theory is the efficiency of the market costs of transaction in the firm. This type of transaction costs is proportional to the size of the firm. William sons transaction costs is, to my view, a reflection of his view of human nature.

Transaction costs theory of Williamson posits that the optimum organisational structure is one that achieves economic efficiency by minimising the costs of exchange. The theory suggests that each type of transaction produces coordination costs of monitoring, controlling and managing the transactions.

The coase theorem says that in the absence of transaction costs. The costs of identifying potential trading partners negotiating contracts, monitoring for compliance and so forth, it does not matter how property rights are allocated.

The theory suggests that it is better to produce the commodity on its own instead of buying the inputs by using foreign currency, it is more inconvenience. So this theory is saying that, it is more profitable when it produces its inputs on its own to produce the agricultural food products.