BUSINESS BEHAVIOR AND THE THEORY OF THE FIRM

Abstract

The article focuses on business behavior and the theory of the firm. The contrasting purposes and concepts of the economist's theory of the firm with accounting practice and analysis must be considered in light of what each group is trying to accomplish. The analysis of the firm may be made on at least three different levels or approaches. First, the accountant must provide necessary financial accounting. Tax returns must be prepared and financial reports must be submitted to the owners of the business. Here, all data must be given on a quantitative basis and in accordance with generally accepted practices. The accountant generally is not concerned with a concept or principle which relates to the whole economy and not to the firm. Second, with an entirely different approach, the economist by using the firm as a producing unit of the economy and assuming the principle of maximization, seeks to provide a satisfactory theoretical explanation of the firm behavior under different circumstances and environment. There is also an intermediate ground of analysis of management, profit planning, and business decisions.