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Introducing the Firm


Companies, firms, and businesses are all organizations that sell widgets. The terms are generally interchangeable, but usually, firms are considered to be more long-term.

There are several types of firms:

 Sole proprietorships are where one person runs the firm. If that person dies, the company falls apart, unless they have a successor - however, the next generation still usually screws the company over.

 Partnerships are where two people run the firm.


Limited liability corporations (LLC) are where in the eyes of the law, you're separate from your business; people can sue your business, but not you. You can sell the business to someone else because the business is separate and has rights - there's legal protection, as opposed to when selling sole proprietorships or partnerships. An LLC can be just one person, or a multinational corporation.

When thinking about firms, you should also think about economies of scale and factors of production.

Economies of scale are the decreases of price that businesses get because of their size or scale. In other words, it's when they buy so much of something that they get a discount.

Factors of production are what businesses need in order to produce something. These factors would include land, labor, and capital.

If a business wants to produce something, they will generally need land in order to build factories in which to make the widget.

They will also need labor, or people/machines to help make the widget. This factor is complicated, because if the business opts for people instead of robots, they will need to account for heating, vacation days, bathroom breaks, etc. However, if they choose robots, they won't have those extra expenses. 

Finally, they will need capital (money) so they can buy the materials or supplies needed to produce the widget.

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