Investments glossary

Theory of the Firm

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Quotes of the day:

Early morning hath gold in its mouth.

— Benjamin Franklin

The theory of the firm is the microeconomic concept founded in neoclassical economics that states that a firm exists and make decisions to maximize profits. The theory holds that the overall nature of companies is to maximize profits meaning to create as much of a gap between revenue and costs. The firm’s goal is to determine pricing and demand within the market and allocate resources to maximize net profits.

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