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Firm, Theory of the

The theory of the firm is an area of economics that uses economic analysis to gain an understanding of the modern business organization. In particular, economists seek a definition of a firm and explanations for the existence of firms, their boundaries and internal structures, and their behavior in markets. This has implications beyond the field of economics to organizational and behavioral studies of the firm, as well as to law and ethics, especially with regard to the status of the corporation as a person and to the design of corporate governance.

Background of the Theory

The term firm is commonly used to designate all business organizations, which include not only the familiar large, publicly held corporation but also smaller sole proprietorships, partnerships, limited liability companies, mutual companies, ...

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