Transaction cost economics provides useful theoretical guidance to explain and predict the boundaries of the firm.

1. What are transaction costs? How do transaction costs impact a firm's boundaries? (4points)

2. Apple is currently evaluating the transaction costs associated with assembling their products in-house (in a newly created Apple-owned factory) versus the transaction costs associated with using an external firm, the Chinese company Foxconn, to assemble their products out-of-house. List and describe two transaction costs associated with Apple assembling their products in-house. List and describe two transaction costs associated with Apple relying on Foxconn to assemble their products out-of-house. (3points x 4)

3. Based on your analysis, do you recommend Apple assemble their products in-house or continue to use Foxconn for their assembly needs? Why? Logically explain and support your response with information from the textbook and external sources (as needed). (4points)