To Hire or to Contract: A Coordination Decision

A car manufacturer needs a specific type of bolt for its assembly line. Under which of the following circumstances would the manufacturer be most likely to create its own division to produce the bolts internally (within the firm) rather than buying them from an external supplier (in the market)?

In a two-person household, both individuals are capable of working. If one person is paid a lower wage than they would otherwise receive in a fair market, specifically due to their gender, what is the direct consequence for the household's overall set of achievable combinations of consumption and non-working time?

Match each description of how economic activities are organized to the corresponding coordination mechanism.

Internal vs. External Production Decision

The Rationale for Firms

A technology startup is developing a groundbreaking and highly confidential algorithm. From an economic coordination perspective, what is the primary advantage of having this work done by salaried employees within the company rather than by contracting with various independent specialists through the market?

According to the economic theory of the firm, if there were absolutely no costs associated with using markets to coordinate production (such as costs for finding suppliers, negotiating contracts, and ensuring quality), then organizing production within a hierarchical company structure would offer no efficiency advantage over contracting with independent individuals for every task.

A company that assembles smartphones decides to source a new, custom-designed camera lens from an external supplier rather than producing it in-house. Arrange the following actions the company must take to coordinate this production through the market, from first to last.

A multinational corporation is planning to manufacture its products in a country known for having a weak and unpredictable legal system for enforcing business agreements. How would this environmental factor most likely influence the corporation's decision on how to organize its production locally?