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  reasoning ­
  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  expression. ­

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  specialism—of ­
  labour,  machinery  and  businesses—
would  be  likely  to  pervade  the  industry  event-