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Consider your organization or one with which you are recently familiar and analyze it in terms of the theory of the firm in use there. Furthermore, analyze it in terms of its current business model activities and the decision processes that drive it. It is important to use the terminology and concepts of the readings in your answer to help create a common language in the discussion. This can be a complex area of discussion and using the same terms and concepts accurately will enable a healthy, efficient discussion.

Throughout history, commercial entities have pursued two distinctive goals. On one

hand, commercial entities strive to maximize their profits by investing in areas that promise

steady and huge rewards. On the other hand, these entities strive to maximize shareholder

wealth. To achieve these goals, companies must make strategic decisions. The theory of firms

explains the decision-making processes of firms by suggesting that these entities always

prioritize profit-making over other business aspects (Fandel, Backes-Gellner, Schlüter, &

Staufenbiel, 2004).

Coca-Cola is a market leader in the global beverage industry. The company sells

carbonated and noncarbonated beverages to consumers around the world. The theory of firms

accredits commercial entities with interacting with their target markets to formulate and

implement the pricing and demand for their products and services (Fandel et al., 2004). As such,

Coca-Cola conducted several studies after consumers complained about the sugar content in the

Coke Zero product. The company was experiencing declining sales for all sugary drinks, a trend

that was fueled by the launching of Coke Zero.

The criticism and poor market performance of Coke Zero was affecting the sales of the

other product lines. When allocating resources, the theory of firms stipulates that firms use

models designed to maximize their returns or rather profits (Wernerfelt, 2016). The management

of Coca-Cola demonstrated the usefulness and correctness of the statement above when they

decided to scrap the Coke Zero product line (Lion, 2017). By doing so, Coca-Cola was redirecting resources from a product line that was less profitable or unprofitable to other product

lines that generate huge rewards. 


Fandel, G., Backes-Gellner, U., Schlüter, M., & Staufenbiel, J. E. (2004). Modern Concepts of

the Theory of the Firm. Berlin: Springer.

Lion, P. (2017, June 9). Coke Zero dumped by Coca Cola as it launches a new drink that took 5

years to create. Mirror.

Wernerfelt, B. (2016). Adaptation, Specialization, and the Theory of the Firm: Foundations of

the Resource-Based View. Cambridge: Cambridge University Press.

by EssayRoyal, Dec. 6, 2019, 8:43 p.m.

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