APPENDIX

309

result of the tax is to increase the cost of production, and to
raise the supply curve. Let the broken-line curve S;s, represent
 the new supply curve. Then the equilibrium position
is changed from P, where Ss cuts Dd, to Q, where Ss, cuts
Dd. The new price is QM, which is greater than PN.
If Pn, parallel to Oz, cut the ordinate QRM in #, the
rise of price is Qn, while the tax adds QR to the marginal
cost of production. The scale of production is reduced, and,
as the figure corresponds to decreasing returns, that results in
reduced marginal cost. The burden of the tax is not wholly
felt in the rise of price, being partly spent in offsetting the
sconomy arising from the reduction of the scale of output.
If the supply were produced under conditions of constant
cost, the points R and # would coincide, and the whole of
the burden of the
tax would be felt
in the price. For
the case of increasing
 returns, Fig. (ix)
is drawn. Here the
scale of production
is changed from ON
to OM. Some of
the economies of a
large - scale supply
are lost, and the
supply price, apart
from the tax, rises
from PN to MR.
To this increase of
cost of production,
the tax falls to be
added, and the total
increase of price is #Q. In using the result thus obtained,
it is important to observe that its validity depends on the
propriety of representing by MR the supply price for an
amount OM, to which the supply is supposed reduced
after having been equal to ON. The value of MR appropriate
 to the case will probably be less than that which
might have corresponded to the output OM when that scale
of output had not been surpassed. As it is not difficult to
conceive, however, of a forced reduction of the scale of output
 which involves some sacrifice of the advantages of
oroduction on a large scale, the problem presented is not