The Theory of the Firm—A Useful Analytical Tool

This paper describes the methodological usefulness of the concept of the theory of the firm in managerial economics. The first part of the paper summarizes the different approaches to understanding the theory of the firm. The evolution of the concept, the different scholars associated with it, recent contributions by eminent scholars, and the different schools of thought are briefly and critically appraised of. The second part describes the use to which the basic idea of the firm’s existence can be put for analyzing the decision-making process in a firm.