Nature and Theoretical Approaches to the Firm

An organization that focuses on maximizing profit by transforming inputs into outputs and selling them in the market.

These costs are incurred to facilitate transactions between individuals or firms in the market. They include information costs, negotiation costs, and the costs of monitoring and enforcing contracts.

A relationship where one party (the principal) hires another party (the agent) to act on their behalf.

The difference in interests between the principal and the agent. The agent may not work as hard as the principal wants, leading to potential conflicts.

A deliberate arrangement of people organized to accomplish a specific purpose. It consists of people who are responsible for completing tasks within a defined structure.

An organization that exists to generate profits by meeting customer needs through the conversion of lower-value inputs into higher-value outputs.

A theory explaining why firms exist. It suggests that markets are not perfect due to transaction costs, making firms a more efficient way to conduct transactions.

A theory arguing that firms can be viewed as a network of contracts between different parties. These contracts define the roles and responsibilities of each party.

A firm's ability to access and use resources effectively, leading to competitive advantage.

Resources are valuable, rare, difficult to imitate, and non-substitutable if they provide a lasting competitive advantage.

The arrangement of ownership and control in a company, outlining responsibilities and rights within the structure.

The individual who initiates and manages a new business venture, assuming significant risks and rewards.

A detailed document outlining a business opportunity, its execution, and potential success.

The process of innovating within an existing company, often involving new products, services, or processes.

A person or group who owns the firm's capital and has ultimate decision-making authority.

A situation where ownership and managerial control are held by separate entities, typically in large corporations.

A firm where ownership and management are often combined, with the owner actively involved in daily operations.

A firm owned and managed by one person, usually an entrepreneur, who personally assumes the risks and rewards.

A legal form where two or more individuals combine their resources and expertise to run a business.

A legal entity separate from its owners, with limited liability and the ability to raise capital from investors.

A business organization owned and controlled by its members, who share profits and responsibilities.

An entrepreneur who takes risks and evaluates opportunities to create and launch a new business.

An entrepreneur who focuses on managing factors of production and analyzing market conditions to achieve efficiency.