An economy populated by entrepreneurial firms will be different from one populated by managerial firms, to continue with the theme of Chapter 3. Of course, in the real world, firms act both managerially and entrepreneurially, but economic theory has tended to focus on the managerial functions of the firm, and has neglected the entrepreneurial activities of firms that are essential for the firms’ survival. The distinction is important from the standpoint of public policy because government policy toward business has been designed around a managerial theory of the firm developed by twentieth-century neoclassical economics. Often, the result has been policies that stifle entrepreneurial activity. Economic analysis has an impact on economic policy, so it is important to orient economic analysis so that it leads to policies that are conducive to economic progress.