ABSTRACT
THE firm is a person, partnership, or corporation selling goods or services that incorporate goods or services bought from others. Manufacturers and farmers sell an output produced with the aid of the services of their employees and with materials and equipment bought from other firms; merchants sell goods bought from producers or other merchants. A firm, therefore, is both a seller and a buyer; and we must discuss its behavior both in the markets where it sells and in the markets where it buys. The goods and services sold by a firm are its products, which may be final products sold to the consumer or intermediate products sold to other firms. The goods and services bought by a firm are its factors of production, whether they are original factors bought from the individual sellers of productive services or produced factors bought from other firms, from whose point of view they are intermediate products. Thus, the same commodity is a consumer’s good when bought for the buyer’s personal use but a factor of production when bought for resale—either in unchanged form or incorporated in a final product in combination with other factors of production. When we speak of production, we usually mean manufacturing or farming; and when we speak of the factors of production, we usually think of fuel, raw materials, semimanufactures, and the services of the workers, managers, and equipment of a factory or farm. In a wider sense, however, a retailer is also a producer; and the product he buys for resale is, from his point of view, a factor of production, which, together with his personal services and the services of his establishment, enters into the finished consumer’s good. For a consumer’s good consists not only in the parcel that the consumer takes home from his shopping tour but also in the convenience of being able to buy that parcel in a conveniently located, nicely decorated store, under pleasant circumstances, and from a pretty salesgirl. Manufacturing and farming are, of course, the main forms of production; but the principles that govern the market behavior of the firm are the same whether it is a farm, a factory, a mine, or a department store.
