Managerial economics

Key characteristics of TCE. The vertical boundaries of a firm and the critical role played by coordination in a vertical chain.

Costs in economic activity.

There is a set of economic principles that can be applied to a large number of business and which are fundamental to the existence of the firm. Business managers perform daily business activities and these activities have costs. When a firm produces a product or a service incurs various costs and understanding the nature of these costs, how they happen, are avoided, modified, and minimized, gives us a broader perspective to decision-making to maximize results.

Businesses often deal with the total cost, average, marginal, among others, in the cost structure there are fixed costs, variable costs, avoidable costs and costs to be incurred, no matter what. When a firm is organized, there are processes of coordination and control that are necessary to facilitate the flow of information between the units and they influence in decision-making costs. Milgrom and John Roberts, explains the importance of coordination of economic activities when the processes are related to each other, and if the relationship is not efficient, then it loses value in economic transactions.

How to deal with the costs?

The implementation of the strategy is to make the best use of resources to obtain better results. The outcome of the choice of decisions shows that managers have good or bad choices. In making decisions, the concept of opportunity cost helps firms make better choices. Opportunity cost is the value of the resource in its best alternative use, the better return that the firm can get whether the firms invest the same amount of resources in other activities of similar risk, the opportunity cost reasoning about alternative offers the displacement of factors of production to another activity.

Understanding these costs allows us to look for a structure of a firm and noted that some activities are