What is the company theory?

The company's theory, also called the company theory, is an economic theory that is trying to find out why companies exist, why they are organized as they are, and why they behave as they do. The company theory was developed after the First World War in response to industrialization and changing nature of the competition. A number of economic theories form the theory of the company.

Companies exist to maximize profits, according to the company theory. The aim of maximizing profits is controlled by all the decisions taken by the company. When the company determines prices, it allocates resources and hires employees, its basic motivation is to maximize profits. For example, on the labor market, the company will hire workers in the long term to maximize profits by maintaining workers. In the high unemployment market, profits can be maximized by a short -term contract, as dictated by demand. According to this theory of the company, the company establishes its hiring under the current economic conditions and selects a method that allows it to maximize its ZISky on this particular market.

The company theory supports organizational efficiency because it makes it possible to maximize profits. To be effective, companies will focus on reducing transaction costs by negotiating more transactions than to operate in a free market system where each transaction is agreed individually. The company must measure transaction costs and determine how to spread them on multiple transactions to maximize profits. This reduces transaction costs for each product unit.

This company theory is complemented by consumer theory, which states that consumers will try to maximize the usefulness of goods that consume. Together, economists argue that the company theory and the theory of Consumer should describe all market behavior. These two theories have an effect on mutual balance because the company theory produces the most efficient company and the consumer theory produces the most effective withneeded.

How the economies have shifted, as well as the company theory. When the company's theory was created, the United States economy has moved from a number of small, cottage industries to national industrialization, with large companies employing thousands of workers. The company's theory based on knowledge today states that knowledge is the most important source of the company. These companies with advanced knowledge will be able to maximize profits more efficiently.