N. Gregory Mankiw quote: “The circular-flow diagram offers a simple way of organizing the economic transactions that occur between households and…”

“Why… are there any market transactions at all? Why not all production carried on by one big firm?… First, as a firm gets larger, there may be decreasing returns to the entrepreneur function, that is, the costs of organizing additional transactions within the firm may rise… Second, it may be that as the transactions which are organized increase, the entrepreneur fails to place the factors of production in the uses where their value is greatest, that is, fails to make the best use of the factors of production… Finally, the supply price of one or more of the factors of production may rise, because the "other advantages" of a small firm are greater than those of a large firm.”

Ronald H. Coase (1910–2013) British economist and author

Source: 1930s-1950s, "The Nature of the Firm" (1937), p. 394-5

“The mark of a capitalistic society is that resources are owned and allocated by such nongovernmental organizations as firms, households, and markets. Resource owners increase productivity through cooperative specialization and this leads to the demand for economic organizations which facilitate cooperation. When a lumber mill employs a cabinetmaker, cooperation between specialists is achieved within a firm, and when a cabinetmaker purchases wood from a lumberman, the cooperation takes place across markets (or between firms). Two important problems face a theory of economic organization—to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization.”

Harold Demsetz (1930–2019) American economist

Source: Production, information costs, and economic organization. 1972, p. 777, Lead paragraph

“The mark of a capitalistic society is that resources are owned and allocated by such nongovernmental organizations as firms, households, and markets. Resource owners increase productivity through cooperative specialization and this leads to the demand for economic organizations which facilitate cooperation. When a lumber mill employs a cabinetmaker, cooperation between specialists is achieved within a firm, and when a cabinetmaker purchases wood from a lumberman, the cooperation takes place across markets (or between firms). Two important problems face a theory of economic organization—to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization.”

Armen Alchian (1914–2013) American economist

Source: Production, information costs, and economic organization. 1972, p. 777, Lead paragraph

“The limit to the size of the firm is set where its costs of organizing a transaction become equal to the cost of carrying it out through the market. This determines what the firm buys, produces, and sells. As the concept of transaction costs is not usually used by economists, it is not surprising that an approach which incorporates it will find some difficulty in getting itself accepted. We can best understand this attitude if we consider not the firm but the market.”

Ronald H. Coase (1910–2013) British economist and author

1960s-1980s, "The Firm, the Market, and the Law" (1988)

“Our goal is to build a broad-based model of key components of the economy: households, firms, banks and government… The failure to embrace things like simulation has inhibited progress in economics.”

J. Doyne Farmer (1952) American physicist and entrepreneur (b.1952)

As quoted by Stephen Foley, " Physicists and the financial markets http://www.ft.com/intl/cms/s/2/8461f5e6-35f5-11e3-952b-00144feab7de.html#axzz2j7a3dBoP" Financial Times Magazine (Oct18, 2013) ref: the CRISIS Project http://www.crisis-economics.eu/.

“It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary -- the maximum attainable set of output quantities for various input quantities, given the state of technology and knowledge. This boundary is the production function of the firm. One of our purposes here is to point out the dependence of such production functions on the structure of property rights and contracting rights within which the firm exists. We redefine the production function in order to recognize the dependence of output on the structure of property and contracting rights. That expanded framework is then used to discuss a concrete set of problems surrounding the role of labor in the firm ranging from the 'labor-managed firm' system (in which tradable capital value residual claims [common stock] are legally prohibited), and the codetermination and industrial democracy movements (in which management participation by labor is required by law), to cooperatives and professional partnerships (i. e., quasi-labor-managed firms which arise out of the voluntary contracting process), and the capitalist corporation.”

Michael Jensen (1939) American economist

Michael C. Jensen and William H. Meckling. "Rights and production functions: An application to labor-managed firms and codetermination." Journal of business (1979): 469-506.