ABSTRACT
Managers and other people bound up with the everyday world might be for-given for thinking that economic principles have little to say about the internal organisation of firms. Even textbooks of ‘managerial economics’, until very recently, would tend to describe firms in terms of sets of cost curves rather than in terms of organisational features. Having learned that average cost cannot be rising unless it falls short of marginal cost, aspiring business practitioners heave a sigh of relief and turn to more obviously ‘relevant’ concerns in the fields of marketing, organisational behaviour, or business strategy. This is regrettable because economic analysis has produced a powerful paradigm for analysing organisational structure and because the separation of the economic from the management literature leads to a proliferation of jargon which is unnecessary and confusing.
