reading reflection

[Students name]
[Professor’s name]
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[Date]
Article Review – The Nature of the Firm
Do you think Coase would agree with Prof. Kight that a firm can continuously expand to become a monopoly? Coase presents arguments for and against the continuous expansion of firms. Economies of scale support growth (394), and the production of multiple products counters the law of diminishing returns which limit growth (401). On the other hand, managerial pressure on the entrepreneur can cause mistakes which reduce efficiency (395), whilst spatial expansion to reach new markets raises the cost of production and exposes firms to uncertainty (397), both of which will ultimately put a limit of expansion.
Do you think the Entrepreneur is the result of transactions cost? The cost of transactions under the price mechanism, such as tax, the cost of information, and contract fees, are incentives for entrepreneurial behaviour which is characterised by much lower coordination costs (390-391). There are, however, alternative motivations for entrepreneurship, including the unequal ownership of capital, and the preference on some peoples’ behalf to work under direction (390).
Do you think coordinations costs could put a limit on firm size? The lower cost of coordination, when compared to transaction costs, is key to the existence and growth of firms (390). That said, the cost of coordination is assumed to rise as firms grow (394), especially if the costs associated with wasted resources attributed to over-stretched entrepreneurs are included (395), implying that a point can be reached where coordination costs exceed transaction costs, and the growth is halted.

What is the process of Cephalisation? Cephalisation describes the process through which decision making responsibilities, which carry risk and uncertainty, are assumed by entrepreneurs within a firm, whose decisions direct the work of others (400). Does Coase agree with Mrs. Robinson that a firm really only produces one product? Coase does not agree that a firm can produce only one product, and sees the production of multiple products as a stimulant for the continuous growth of firms (402). Mrs Robinson’s view is seen as a simplification for the purpose of cost curve analysis (402).
Work Cited
Coase, R H. “The Nature of the Firm.” Economica. Vol. 4, no. 16, 1937, pp. 386-405