Answer to Question #62695 in Microeconomics for nelly

Question

what are the limitation and strength of neoclassical theory in understanding the behavior of a firm.

Answer 1

Neoclassical economics emphasizes equilibria, where equilibria are the solutions of agent maximization problems. Regularities in economies are explained by methodological individualism, the position that economic phenomena can be explained by aggregating over the behavior of agents.
One of the weaknesses of this theory is that neoclassical economics is sometimes criticized for having a normative bias. In this view, it does not focus on explaining actual economies, but instead on describing a theoretical world in which Pareto optimality applies.