Existence of Business Firms

Existence of Firms
Name
Institution/ Affiliation
Globally, firms play an incredibly vital role in a country’s economy not only through the provision of goods and services but also by creating employment opportunities. Typically, resource allocation has been an economic problem, especially in a system where data about endowments, inclinations, and production possibilities are spread among many players. Thus, firms help bridge the gap between these factors by determining the products to be produced as well as production processes. According to Contractor (2012), a system with discrete information is closely associated with communication challenges. Typically, firms take less time to communicate information, thus explains their dominance in the market.
In any system, each individual contributes differently to the production process but also relies on the inputs of other players. The synchronization between the diverse players happens through price signals in the free markets. Consequently, players can mutually agree to an equilibrium of what they produce, quantities to create, and the prices (Contractor, 2012). However, in the real world, different players join to work together as a firm. Therefore, the firm organizes itself without the price signals and centrally managed by an entrepreneur.
Such a scenario is significantly attributed to transaction costs such as sales taxes, escrow fees, writing and negotiation, brokerag...