ABSTRACT
The neoclassical model of production often mischaracterised as a theory of the firm, that appears in most undergraduate microeconomic textbooks had largely developed by the 1940s. Of the early attacks on the neoclassical model the most famous were the ‘full cost controversy’ in the United Kingdom and, in the United States, the related ‘marginalist controversy’. The controversy arose because this full cost approach to pricing was seen as a challenge to the usual marginalist profit-maximising view of the firm. The earlier full cost and marginalist controversies tried to highlight the empirical shortcomings of the neoclassical model, in particular the failure of empirical studies to support profit maximisation. Critiques of the neoclassical model of the firm did not stop after the full cost and marginalist controversies petered out. Further challenges to the orthodoxy arose in the 1950s and 1960s from economists who developed the managerial, behavioural and X-inefficiency theories of the firm. While under fire, the neoclassical theory took few casualties.
