Profit maximisation, the economist’s suit for all occasions, has now begun to be replaced by a wardrobe of theories. That they seem all to be based on different motivations and different methods of operation within firms — and to yield different results — may well be confusing. But to regret the proliferation of theories of the firm is clearly futile. It was a necessary price to pay for added realism. But now that new knowledge of the complexity of the behaviour of firms has made us less able to provide the simple universal relationships (like marginal cost equals price) which are needed for welfare theory and the other branches of economics, has the need to formulate coherent theories of the firm been correspondingly devalued? After all, one of the main reasons for studying firms was to find such relationships, between cost and price, between the output of labour and its wage, and so on — relationships which were assumed to hold universally and which could therefore be held to apply throughout economic theory. If the credibility of such universal relationships is now severely strained, has the study of firms any real point?
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