ABSTRACT
Early (classical) theories of the firm grew from the analysis of production. Companies were created to overcome the coordination and contractual problems of combining increasingly sophisticated, indivisible physical capital with an increasingly fine division of labour. Capital accumulation and divison of labour also helped markets to grow, ensuring that firms’ growth did not necessarily lead to industrial concentration and monopoly power. Defined judicially as a ‘legal person’ and economically as a single set of appropriately crossing cost and revenue functions, the firm could be treated – symmetrically with the worker or household – as one agent when entering the marketplace to procure its inputs and trade its outputs.
