Theories of the firm
Theories of the firm
This chapter focuses on models of the firm that have the firm as the unit of analysis when they become formal. The classic theory of the firm as a profit-maximizing production possibilities set is the starting point, and it begins by attacking the notion that profit maximization is what a firm does or ought to do. The chapter then discusses so-called managerial models of the firm, where the firm is conceived of as a production possibilities set that does not maximize profits but pursues some other goal that reflects the interests of managers: maximization of sales revenue, or of capital, or of the probability of a “satisfactory” level of profits. Finally, it considers a very different conception of the firm. In this approach, firms are dynamic entities, which at a given point of time, are described by a production routine and which evolve according to environmental factors through patterns of search and imitation, looking for better routines.
Keywords: firms, profit-maximizing production, profit maximization, managerial models, production possibilities, managers, production routine
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