A simulation of a business firm

This paper describes a simulation model of a hypothetical business firm. The model was constructed to include not only the accounting and economic factors of costs, profits, sales, units produced, etc., but also psychological and behavioral concepts. Individuals in the firm have aspiration levels, feel pressure, and react in accordance with behavioral theory. The purpose of the model is to study the effects of informational and organizational factors upon the decisions of a business firm. We have had limited knowledge of such variables as: the effects of tardy information, the effects of different distributions of information within the firm, the effects of differing degrees of centralization or decentralization, etc. A comprehensive model, such as the one proposed, is necessary to answer such questions. Eight specific hypotheses involving changes in the organization and information system of the firm were formulated and tested using a factorial experimental design. The results of this experiment demonstrate the usefulness of this model as a research tool.