How does theory stack up against reality? The field of management strategy seeks to develop policies for man-agers, which require a framework that can evaluate the effectiveness of alternative strategies. Economic theory of the firm. Theories of Firm_Managerial Economics 1. A general theory of the firm also is useful for teaching economics. 35 Economic facts of the firm. What to do? Theories of the Firm By, Satish Kumar M Powerpoint Templates Page 1 2. addition, the general theory of the firm helps to understand management decision making. It also stems from the so-called dichotomy between ownership and control. In its simplest version, the firm is thought to have profit maximization as its primary goal. It helps in covering the gap between the problems of logic and the problems of policy. Understanding the Theory of the Firm . Managerial economics, on the other hand, aims at developing a managerial theory of the firm and for the purpose it takes the help of economic theory of the firm. The subject offers powerful tools and techniques for managerial policy making. The theory of the firm aims at answering the following questions: However, there are certain difficulties in using economic theory as an aid to the study of decision-making at the level of the firm. Economics An alternative managerial theory of the firm has been developed by Robin Marris. He suggests that a possible goal which has connections with both sales and profits is that of growth of the firm. Theory of the firm is related to comprehending how firms come into being, what are their objectives, how they behave and improve their performance and how they establish their credentials and standing in society or an economy and so on. Managerial economics is a discipline that combines economic theory with managerial practice. 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