Theory of the Firm

Discipline: Economics

Theory of the firm is an analysis of the behavior of companies that examine inputs, production methods, output and prices.

The first elementary examination of companies was made by French economist Antoine Augustin Cournot (1801-1877) and later modified by (among others) English political economist Alfred Marshall (1842-1924).

The traditional theory assumes that profit maximization is the goal of the firm. More recent analyses suggest that sales maximization or market share, combined with satisfactory profits, may be the main purpose of large industrial corporations.

Also see: agency theory, bureaucracy, organization theory, satisficing, theory of the growth of the firm

O E Williamson, The Economics of Discretionary Behaviour: Managerial Objectives in a Theory of the Firm (Englewood Cliffs, N.J., 1964)


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