a
lowering of prices, but includes that portion of the custom of his
rivals which he may be able to divert to himself. Hence it arises that
under free competition it will be the tendency of the several
competitors to drive down the prices to the point at which the most
advantageously placed competitors make the minimum profit on their
capital.

Sec. 5. It is all important to an understanding of the subject to
recognise that a monopoly price and a competitive price are determined
by the operation of an entirely different set of economic forces. The
loose opinion that it must be to the interest of a Trust or other
monopoly to sell at the same price as would be fixed by competition is
quite groundless.

Let us look more closely at the determinants of a monopoly price.
Suppose we are dealing with a Trust owning a large amount of fixed
capital, some of it more and some less favourably ordered for
production, and having an absolute monopoly in the market for steel
rails, cotton bagging, or other manufactured articles. First look at
expenses of production. A very small output, though produced by the
exclusive use of the very best machinery and labour, would not be
produced very cheaply, because the economies attending large-scale
production would be sacrificed. Each successive increment in output
would involve a decreased expense per unit of production so long as
the most favourably situated plant was employed. If the output grew so
large that worse material or works fitted with inferior plant, or less
favourably placed, were called into requisition, the economies of an
increased scale of production would be encroached upon by this
lowering of the margin of production. Taking the Trust's capital at a
fixed amount, there would necessarily come an increment of output
which it would not pay to produce even if sold at the price fetched
by the previous increment. The ton of steel or of cotton bagging which
would only yield a bare margin of profit, if sold at the price fetched
by the last ton, limits the maximum output of the business. Under the
pressure of free competition this marginal ton will be actually
produced. But though, considered by itself, it yields a margin of
profit, it will rarely if ever be produced as part of the actual
output of a Trust. The actual output of a Trust, we shall find, will
be determined at any point between the first unit of output and this
marginal increment. The expenses of production will not i