The organization of the business firm
The business firm is an entity designed to organize raw materials, labor, and machines with the goal of producing goods and / or services. Firms (1) purchase productive resources from households and other firms, (2) transform them into a different commodity, and (3) sell the transformed product or service to consumers.
Every society, no matter what type of economy it has, relies on business firms to organize resources and transform them into products. In market economies, most business firms choose their own price, output level, and methods of production. They reap the benefits of sales revenues, but they also must pay the costs of the resources they use. In socialist countries, governments often set the selling prices of goods and services and constrain the actions of business firms in various other ways. Firms typically do not pay all their bills from their revenues, and they are often not allowed to keep revenues that exceed costs. In any case, the business firm is the entity used to organize production in capitalist and socialist economies alike.