66 
POLITICAL ECONOMY 
it for the sake of argument that the output 
of the five firms is 120,000 yards. Then the 
supply price for an output of 120,000 yards 
would be 7jd. Continuing this line of reason 
ing we could construct, in theory at any rate, 
a schedule of supply prices for all possible 
outputs. The highest cost of production (as 
above defined) for a given output is loosely 
called the marginal cost of production. With 
a view to avoiding an ambiguity that will 
appear later, it is better to call it the 
cost of production (per unit of output) of 
the marginal firm when there is any chance 
of a misunderstanding of the shorter ex 
pression. 
So far our course has been plain sailing, 
but we now reach troubled waters. We have 
assumed above that the new firm E will 
have a cost of production higher than that 
reached by any of the firms, A, B, C, and D, 
under the old conditions. But this would not 
necessarily be the case. The new firm might 
conceivably have a cost of production lower 
than the old marginal cost, and yet the highest 
of all the costs under the new conditions. 
After the new firm had appeared and the 
industry had been made larger, greater special 
ism—of labour, machinery and businesses— 
would be likely to pervade the industry event-