The Theory of the Firm

Abstract

The mathematical tools are now available for a detailed analysis of production in the firm. The concept of a firm is simple, a matter of definition ; it is the effective decision-taking unit in whatever production activity is considered. In practice, this may be what is called an establishment or plant, or it may be a company. On the other hand, it may be a group of establishments or companies organised into some unit of effective control, an organisation like Unilevers or a nationalised industry. Whatever the organisation, however, it is assumed here that there is a decision-taking unit—for the particular activity and time period (short or long) considered —and the unit is called the firm as a matter of convenience.