The family that was in equilibrium at A will be able to get to a higher level of utility at B where they choose more education. Illustrate and explain the impact on the budget line of health insurance. Explain the importance of transactions costs in the theory of the firm. Transactions costs are half of the explanation behind the theory of the firm. One source of lower costs is the ability of firms to avoid transactions costs.
Transactions costs are the costs associated with market transactions.
The costs include search costs, contracting costs, negotiating costs, and monitoring costs. These costs increase the costs of organizing production through markets. Firms avoid transactions costs by moving the exchange out of the market and into the firm. By forming continuing contractual relationships with resource suppliers the firm avoids having to go back into the market to find resources. Firms go back to markets when the cost of doing so is less.