Question

What is the Role of Firms in Market-Based Economies?

Answer 1

In economics producers –also referred to as firms or businesses play a role in the use of inputs (different production factors) and in the production of goods and services (output). Industries are influential in choosing what to manufacture and how to produce.

Personal companies–self-employed individuals Private firms–often small / mid-sized firms owned by a small number of people.
Public limited firms-generally large firms listed on the stock market. The public can buy shares in the company and share in their profits. Co-operatives / social entrepreneurship. Companies that are not aimed at maximizing profit but function to further clear social and economic objectives.

To develop new products. Companies will try to adapt to consumer preferences in pursuit of profit, and develop new goods and services. For example, companies have opened new stores in response to increased demand for coffee to cater for the new demand. Furthermore, businesses that attempt to predict what customers would want to be developing new products that they had not expected were possible. For instance, Apple's iPod and iPhone creation (instead of trying to improve the old CD player) may also entail providing new services such as supermarket home delivery.

Capital investment, and new technology. Industries should try to use capital and labour as profitably as possible. This will include the development of new technologies and work practices to boost economic productivity. It leads to higher productivity and eventually higher living standards by trying to cut costs, and investing in new resources. Without the innovation and investment cycle, economies will stagnate more with a higher standard of living.