The firm is an organization that produces a good or service for sale and it plays a central role in
theory and practice of Managerial Economics. In contrast to non-profit institutions like the ‘Ford
Foundation’, most firms attempt to make a profit. There are thousands of firms in India producing
large amount of goods and services; the rest are produced by the government and non-profit institutions.
It is obvious that a lot of activities of the Indian economy revolve around firms. One of the crucial
determinants of a firm’s behaviour is the state of technology. Technology imposes a limit on how
much a firm can produce. It is the sum total of society’s pool of knowledge concerning the industrial
and agricultural arts. Production is any activity that transforms inputs into output and is applicable not
only to the production of goods like steel and automobiles, but also to production of services like
banking and insurance. The firm changes hired inputs into saleable output. An input is defined as
anything that the firm uses in its production process. Most firms require a wide array of inputs. For
example, some of the inputs used by major steel firms like SAIL or TISCO are iron ore, coal, oxygen,
skilled labour of various types, the services of blast furnaces, electric furnaces, and rolling mills as
well as the services of the people managing the companies. To give another example, the inputs in
production and sale of “chaat” by a street vendor are all the ingredients that go into making of the
“chaat”, i.e., the stove, the “carrier”, and the services of the vendor.