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The basic unit of organization for productive activities. Economic theory views the firm as transforming inputs into outputs subject to the limitations of its technological knowledge (summarized in the production set) and guided by its objectives. The theory of the firm models how a firm would behave given assumptions about its objectives, which may include profit maximization, avoidance of risk, and long-run growth, and investigates explanations for the observed firm structures. Many firms are run by sole traders, and others are partnerships; larger firms are usually organized as companies. A single firm may have numerous establishments or branches, such as factories or shops. See also dominant firm; evolutionary theory of the firm; incumbent firm; managerial theories of the firm; marginal firm; multinational; multi-plant firm; multi-product firm; representative firm; worker-controlled firm.

Subjects: Economics.

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