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Economic Size of Organizations
Nelson, Edward A.
10/3  (Spring 1968): 61-72

The economist's interest in management is primarily focused on the question of the size of the firm. The focus of this article is on the effects of organization size on the efficiency of management as reflected in the total unit costs of production. It is commonly claimed that one of the indications of lower managerial efficiency resulting from increased size is a more-than-proportionate growth in the administrative component.' If the process of management does indeed have finite limits, management would provide the fixed factor causing the firm's long-range cost curve to slope upward beyond a certain output. This U-shaped long-run cost curve is necessary for equilibrium under the concept of perfect competition and helps to explain the pre-dominance of small- and medium-sized firms. There are factors that a manager can employ that provide offsets to the frequency and severity of interaction required between a manager arid his subordinates and to the restrictions in the flow of information between organizational levels.

 

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