Firm and industry are the terms used in the context of economics while the firm is a narrow concept as it operates within an industry but the industry is a much wider concept as it operates within an economy and if you are an economics student then you should be aware of some of the basic differences between firm and industry. Let’s look at some of the differences between firm and industry –
Firm VS Industry
Meaning
The firm refers to that organization that sells the products or services to the customers and earns profits from such sales while industry refers to that group of firms of companies that produces and sells similar products or close substitutes. In simple words, the firm is that business unit that is doing business individually, and when many firms are doing the same business then it is called an industry hence an industry is a group of many firms doing their business.
Classification
The firm can be classified into 3 types that are sole proprietorship in which business is done by the sole proprietor, a partnership firm in which the business is done by partners of the firm and the third one is the company where the business is done by the company which is a distinct entity from its owners. The industry can be classified into 3 types namely primary industries which represent those companies which are into agriculture, fishing, mining, and so on while second is secondary industries which represent those companies that are into manufacturing and last is the tertiary industry which is also known as service sector and it represents those company which is into services such as banking, insurance, tourism and so on.
Number
In the case of a firm, there is only one single entity which can be any one of the 3 types that sole proprietorship, partnership, or company while in the case of the industry there can be many firms operating in an industry. Besides the number of firms in a country can be millions but the number of industries is limited to 20 to 50 as an industry is a much broader concept than a firm.
Regulations and Government Policies
In the case of firms, there is no need for any separate policy or regulation as it has to operate according to industry regulations while as far as industry is concerned its working is dependent and governed by the government policies and regulations which keep changing from time to time depending on the various factors like economic growth of the country, government attitude, people perception, the global economy and so on.
Profits and Losses
In the case of firms, the profit or loss of the firm is dependent on many factors like industry demand, the company’s own operating efficiency, tax rates, consumer support, and so on and that is the reason why some firms go out of the industry even when the industry as a whole is earning handsome profits but as far industry is concerned its profit or loss is dependent on two factors while one is consumer demand for industry products and other is government policy towards the industry as a favorable policy can bring good rewards for the whole industry while an unfavorable policy can cause a dent in the profits of the industry.
Permanency Factor
In the case of firms, there is no permanency factor as firms start and shut their business regularly except for few large firms but as far as industry is concerned it remains as long as the economy of the country is functioning. In simple words, firms are like a government of democratic nations just like government keeps changing in democratic countries in the same way firms keep changing but the industry is like democracy just like democracy never end in the same way industry never ends rather it keeps modifying itself.
As one can see from the above that there are many differences between firm and industry but in a way, both industry and firm are interconnected in the sense that any firm operating within an industry requires the support of the industry to flourish and any industry cannot flourish without flourishing firms.