Which of the following is an example of an internal transaction cost?

• A. Fees paid to external consultants
• B. Taxes imposed by the government
• C. Time spent coordinating tasks within a firm
• D. Costs of advertising to attract new customers

Answer: (C)

Verified step by step guidance

1. Understand the concept of transaction costs: these are costs incurred in making an economic exchange. They can be internal (within the firm) or external (between firms or with outside parties).
2. Identify internal transaction costs as those related to activities inside the firm, such as coordinating tasks, managing employees, or organizing production processes.
3. Review each option and classify it as internal or external: fees paid to external consultants are external costs; taxes imposed by the government are external costs; costs of advertising to attract new customers are external marketing costs.
4. Recognize that 'time spent coordinating tasks within a firm' is an internal transaction cost because it involves resources used inside the firm to facilitate transactions and operations.
5. Conclude that the correct example of an internal transaction cost is the time spent coordinating tasks within a firm, as it directly relates to internal organizational activities.