In the theory of the firm, the behavior of any company is said to be driven by profit maximization. The theory governs decision making in a variety of areas including resource allocation, production techniques, pricing adjustments, and the volume of production.
Early economic analysis focused on broad industries, but as the 19th century progressed, more economists began to ask basic questions about why companies produce what they produce and what motivates their choices when allocating capital and labor.
Under the theory of the firm, the company' sole purpose or goal is to maximize profit. However, the theory has been debated and expanded to consider whether a company' goal is to maximize profits in the short-term or long-term.
