Which of the Following Statements Is True of Transaction Costs

question 38

Multiple Choice

Which of the following statements is true of transaction costs?

• A) When the costs of pursuing an activity in-house are more than the costs of transacting for that activity in the market, then the concerned firm should vertically integrate.
• B) When companies transact in the open market, they incur internal transaction costs.
• C) Transaction costs exclusively consist of external costs associated with economic exchanges.
• D) Transaction costs are necessary to explain and predict the boundaries of a firm.

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Definitions:

Supervising Activity

An oversight function involving the monitoring and direction of resources, processes, or employees to achieve organizational objectives efficiently.

First Stage Allocations

The process of assigning indirect costs to different departments or cost centers within a business.

Equipment Depreciation

The process of allocating the cost of tangible assets over their useful lives, reflecting the decrease in value due to use, wear and tear, or obsolescence.

Supervisory Expense

Costs associated with managerial or oversight activities within an organization, typically involving salaries and benefits of supervising staff.