Firms exist when the transaction cost of
doing something within the firm, even
with all its overhead, is lower than than
cost of doing things through a
marketplace of free agents.
“[this works well until] the costs of
organising an extra transaction within the
firm become equal to the costs of carrying
out the same transaction by means of an
exchange on the open market or the costs
of organising another firm"
"For example, McDonald's can produce
both hamburgers and French fries at a
lower average expense than what it would
cost two separate firms to produce each
of the goods separately. This is because
McDonald's hamburgers and French
fries are able to share the use of food
storage, preparation facilities and so forth
during production."