Firms
Also called: business sector, Business, enterprise · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 7, Ch 12 "Understanding Markets"; Class 8, Ch 7 "Factors of Production"; Class 12, Ch 1 "Introduction (Macroeconomics)"; Class 12, Ch 2 "National Income Accounting"; Class 12, Ch 3 "Production and Costs"; Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
Firms are production units run on capitalist lines. An entrepreneur hires labour, capital and land, bears the risk, and sells the output in the market for profit. The firm's sales revenue is split among the factors of production as wages, interest, rent and profit. Firms are one of the four sectors of the four-sector model, along with households, the government and the external sector.
Example
A textile mill in Tiruppur hires workers, borrows capital, rents a factory shed and sells shirts. From its sales revenue it pays wages to workers, interest to lenders and rent to the landowner. What is left over is the entrepreneur's profit.
Don't confuse with
- Household: households supply factor services and consume goods. Firms hire those factor services and produce goods.