The theory of the firm provides an explanation for the market supply of goods and services.
A firm is defined as any organization of individuals that purchases factors of production (labor, capital, and raw materials) in order to produce goods and services that are sold to consumers, governments, or other firms.
The theory of the firm assumes that the firm's primary objective is to maximize profits.
In maximizing profits, firms are subject to two constraints: the consumers' demand for their product and the costs of production.
