If we consider the operation of a sales tax, it is clear that it is a tax on market transactions and not on the same transactions organised within the firm.#
A firm, therefore, consists of the system of relationships which comes into existence when the direction of resources is dependent on an entrepreneur.#
The costs of organising and the losses through mistakes will increase with an increase in the spatial distribution of the transactions organised, in the dissimilarity of the transactions, and in the probability of changes in the relevant prices.#