Theory of the firm

Theories relating to firms' roles in the economy The theory of the firm consists of a number of economic theories that explain and predict the nature of a firm: e.g. a business, company, corporation, etc... The nature of the firm includes its origin, continued existence, behaviour, structure, and relationship to the market. Firms are key drivers in economics, providing goods and services in return for monetary payments and rewards. Organisational structure, incentives, employee productivity, and information all influence the successful operation of a firm both in the economy and in its internal processes. As such, major economic theories such as transaction cost theory, managerial economics, the behavioural theory of the firm, the resource-based view, and the dynamic capabilities framework provide conceptual frameworks for an in-depth analysis on various types of firms and their management. Overview In simplified terms, The Theory of The Firm aims to answer these questions: Existence. Why do firms emerge? Why aren't all transactions in the economy mediated through the market? Boundaries. Why is the boundary between firms and the market located exactly where it exists in relation to