In my youth it was said that what was too silly to be said may be sung. In modern economics it may be put into mathematics. - Ronald Coase

In mainstream economic theory, the firm and the market are, for the most part, assumed to exist and are not themselves the subject of investigation. One result has been that the crucial role of the law in determining the activities carried out by the firm and in the market has been largely ignored.

The question always is, will it pay to bring an extra exchange transaction under the organizing authority? At the margin, the costs of organizing within the firm will be equal either to the costs of organizing in another firm or to the costs involved in leaving the transaction to be “organised” by the price mechanism. Business men will be constantly experimenting, controlling more or less, and in this way equilibrium will be maintained. This gives the position of equilibrium for static analysis.

A firm consist of the system of relationships which comes into existence when the direction of resources is dependent on an entrepreneur.