In This Chapter
Understanding the firm as an economic organization
Understanding how microeconomists view firms
Thinking about why people form companies
One of the key insights into how a market economy organizes production is the concept in microeconomics of a firm: an entity or agent that produces things. This description is very general, necessarily, because in the real world many different types of organization can be called a firm. For simplicity, we start from an assumption that all these firms are of the same type — even if we give them many different names in reality — and share similar essential features.
In this chapter, we expand on the general description and then firm up (sorry!) a few of the concepts that underlie the production that firms undertake. We look at some of the different structures of firms and some of the critical problems associated with organization. After reading this chapter you’ll have a firm (oh no, not again!) grasp of how firms form the backbone of production in a market economy.
The best approach to start thinking about the firm is in ...