The theory of the firm consists of a number of economic theories

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 that describe the nature of the firm, company

Company

A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...

, or corporation

Corporation

A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

, including its existence, behavior, structure, and relationship to the market

Market

A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

.
In simplified terms, the theory of the firm aims to answer these questions:

1. Existence – why do firms emerge, why are not all transactions in the economy mediated over the market?
2. Boundaries – why is the boundary between firms and the market located exactly there as to size and output variety? Which transactions are performed internally and which are negotiated on the market?
3. Organization – why are firms structured in such a specific way, for example as to hierarchy or decentralization? What is the interplay of formal and informal relationships?
4. Heterogeneity of firm actions/performances – what drives different actions and performances of firms?

Firms exist as an alternative system to the market-price mechanism when it is more efficient to produce in a non-market environment.