Alternative Theories of the Firm

Several issues have been raised concerning the neo-classical models of the firm. These traditional models, namely, perfect competition, monopoly, monopolistic competition and oligopoly, are all subsumed under the label of marginalist models of the firm. This label derives from the way in which equilibrium (profit maximization) is achieved in all the models through the equating of the firm’s marginal cost with marginal revenue. From around the 1950s, these traditional theories have been seriously challenged and alternatives offered. In the same way that the traditional models were developed and modified to meet the changes in the business and productive sectors, newer models have emerged to take into account largely empirical changes observed in the market. Many of the newer alternatives tend to tread a thin line between economics and management.