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Question: Two leading design firms, Astro Studios of San Francisco and Hers Experimental Design Laboratory, Inc. of Osaka, Japan, worked with Microsoft to design the Xbox 360 video game console. IBM, ATI, and SiS designed the Xbox 360's hardware. Three firms-Flextronics, Wistron, and Celestica- manufactured the Xbox 360 at their plants in China and Taiwan.

a. Why do you think Microsoft works with a large number of other firms, rather than performing all the required tasks itself?

b. What are the roles of transactions costs, economies of scale, economies of scope, and economies of team production in the design, manufacture, and marketing of the Xbox?

Microeconomics, Economics

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