Question

What determines the efficiency of the firm in neoclassical economics? Discuss possible alternative theories.

Answer 1

Neoclassical economics is centred on the demand and supply analysis based on profit maximization assumption. Whereas efficiency means making use of all available resources to achieve the goal of profit maximization. Thus an efficient firm in neoclassical economics is the one working perfect information and maximising profit by equating the demand and supply.

As per other theories of an efficient firm such as the modern theory of firms, an efficient firm is the one which could sustain itself and increase its market share over the period of time.