CHAPTER 8 
VARYING Costs; DIMINISHING RETURNS; 
INCREASING RETURNS 
THE reasoning of the preceding chapters has been based on the 
assumption that the cost of each and every article is uniform. 
Changes in the volume of output were supposed to have no effect on 
the cost per unit. But costs are not necessarily uniform ; they are 
subject to variation according as the total product is large or small. 
It is incumbent on us to consider the influence on international 
trade of costs thus varying. 
In analyzing this sort of situation I shall return to the highly 
simplified suppositions made at the start, neglecting the compli- 
cations and qualifications which have been dealt with in the 
chapters immediately preceding. That is, labor cost in its simplest 
form will be considered, uniformity of wages assumed between the 
laborers (no non-competing groups), capital and a return to capital 
disregarded. These other factors — which we have seen not to be 
of such fundamental importance as that of effectiveness of labor — 
will serve to qualify the conclusions no more and no less than before. 
Return once more to the illustrative case already used, showing 
differences in comparative cost, namely : 
In the U. S. 10 days’ labor produce 20 wheat 
Pa 02 TLS 1G 2 2 ?” 20 linen 
” Germany 10 ” ” ” 10 wheat 
” Germany 10 ” 15 linen 
The United States has a comparative advantage in the pro- 
duction of wheat; linen will move from Germany to the United 
States, wheat from the United States to Germany. The barter 
terms of trade between the two countries will be 10 of wheat for 
somewhere between 10 to 15 of linen — 11, 12, 13, 14 linen. The 
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