Firm vs Industry
Firm and industry are words that are very commonly used yet misunderstood by many. People think they know what they mean when they use these words yet there are people who make erroneous use of the two concepts. This article attempts to clear all doubts to enable readers to have a better understanding of the two terms used in economics.
A firm is more or less similar to the concept of a business establishment. The term is mostly used in relation to companies providing judicial services to clients. These are business establishments referred to as law firms. A firm can be a sole proprietorship or a partnership, but the basic premise is that it is run for making profits. In US alone, there are an equal number of firms and establishments. A firm can operate inside an industry such as a firm that makes and supplies steel to other companies requiring steel while all these companies exist under the steel industry.
In economics, the economy of a country is divided into an umbrella of industries where an industry consists of all organized activities for production and processing of products. However, industry is also described as retail and wholesale depending upon the nature of transactions with the customers. There are also industries in services sector such as the banking industry or the insurance industry. An industry covers all economic activities that are organized and carried on by all individuals, units, firms, businesses, and organizations existing and working inside it.
What is the difference between Firm and Industry?
• Industry refers to a kind of business inside an economy while a firm is a business establishment inside an industry.
• There can be many firms inside an industry.
• Industry is not an entity while a firm is a type of company.
• A firm is a type of business whereas an industry is a sub sector of an economy.
• Rules and regulations are made for an industry, and that typically apply to all firms inside the industry.