Practice question · Match the pairs
Match each core role of the firm to its description.
- Coordination
- Value creation
- Risk-bearing
- Innovation
- Making output worth more than the inputs
- Paying factor incomes before revenue is known
- Introducing new products and processes
- Directing production factors under one authority
Hints
- Separate what the firm coordinates from what it bears.
- One role explains why the firm exists instead of a chain of contracts.
Show the answer
- Coordination → Directing production factors under one authority
- Value creation → Making output worth more than the inputs
- Risk-bearing → Paying factor incomes before revenue is known
- Innovation → Introducing new products and processes
Why
The firm replaces market haggling with managed coordination, and it earns its profit by bearing the risk that revenue may not cover committed costs.
Practise Concept of the Firm
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