Answer to Question #228905 in Microeconomics for KAT

Question

Explain in detail behavariol theory of firm.?

Answer 1

The behavioural theory of the firm postulates that it is a coalition of participants. Each participant receives from the organization inducements and, in return, makes contributions to the organization. Each participant will continue to participate only as long as the inducements offered are as great as or greater than (measured in terms of the individual’s values and the alternatives open to him) the contributions he is asked to make. Hence, the organization will continue to exist only so long as the contributions are sufficient to provide inducements in large enough measure to draw forth these contributions.

Participants in the firm are employees, investors, suppliers, distributors, consumers and possibly others. Contributions made by employees include not only the labour hours they put in but also their ideas for improvements, intelligence and so on. Inducements offered to employees include monetary payments (pay, pensions and so on), but also non-monetary benefits, such as self-achievement and job satisfaction.