A firm is an extension of markets. It exists so that the individual members can specialize and gain from trade as well as minimize the risk of being a sole proprietor. In the following assignment, consider how well the firm can and cannot meet the criteria of a free market.
Write a 2-3 page paper that discusses the following:
- Can trade and exchange occur within the firm without the existence of private property rights? If individual property rights are necessary for economic success, how might the firm allow property rights?
- What are the "boundaries" of a firm? What determines the extent of vertical boundaries? What determines the extent of horizontal integration? Use a cost-benefit analysis to describe the optimal boundaries of a firm.
- Why does the evolution of large firms lead to a principal-agent problem? How can the principal-agent problem between owners and managers be minimized?
Original content only. Will be checked against a plagiarism checker.