What is the theory of the firm

A firm can be considered an amalgamation of people, financial and physical resources and a variety of information. Firms exist as they perform useful functions in society by producing as well as distributing services andgoods. In the process of achieving this, they use society's scarce resources, provide employment and pay taxes. If economic activities of society can be just put into two categories- production and consumption- firms are considered the most fundamental economic entities on the production side whereas consumers form the fundamental economic entities on the consumption side. Behaviour of firms is generally analysed in the context of an economic model that is an idealised version of a real-world firm. The fundamental economic model of a business enterprise is known as the theory of the firm.