Question

What are the two ways through which firms play an important role in an economy?

Answer 1

Firms produce goods and services by employing the factors of production and sell the same to the consumers, other firms and the governments.

They take decisions about the location of plant, quantity and quality of the commodity to be produced and factors of production to be employed. 

Thus, firms play a dual role: 

1. They produce and sell various goods and services in exchange for money.
2. They purchase different factors of production by paying factor prices.