or
ill-managed mills that are making nothing and are likely soon to be
abandoned. They are the marginal mills we have spoken of, and the
goods that they make cost all that purchasers will give for them. This
insures a coincidence of the price of the goods with the cost of
making them in such a mill, but this is merely an incident in the
process of eliminating the inefficient establishments from the field.
In the mill which happens at this date to be the one about to be
crowded out the cost of the goods equals the selling price of them and
will exceed it as soon as the price goes to a lower point. This cost
happens transiently to coincide with the price, but does not
_regulate_ it. It is the outlay that the best mill incurs that does
that, since it sets the standard toward which the price is made to
tend.[2]

[2] IMPROVEMENTS AND PRICES UNDER COMPETITION

The figure represents a subgroup in which five producers,
_a_, _b_, _c_, _d_, and _e_, are operating. Later, a new
establishment _f_, is introduced. The upper dark line
represents the price of a unit of the product, and the lower
dark line the cost of making a unit in the establishment
which is for the time the most efficient.

The dotted lines represent the respective costs of production
in the different mills, ranging from _a_, the most efficient,
to _e_, which can barely hold its own. What the figure
represents as happening is as follows:--

_b_ first makes an improvement which lowers his cost of
production, as shown by the descending dotted line. This
enables him to increase his output, and so has its effect on
the price, which descends. Now, producer _e_ was already
selling goods at cost, but he is not at once driven out of
the business. Instead, even though he cannot earn full
interest on the original cost of his fixed establishment, he
will continue to run as long as he can make his plant earn
anything at all. The result is a virtual reduction of the
capitalized value of the plant (the interest on which is an
item of cost), and this is what is represented by the descent
of the dotted line which represents _e_'s cost of production.
The situation is now represented by the series of
points,--_b'_, _a'_, _c'_, etc., representing at their
second stage the differing levels of cost in the case of
different producers.

[Illustration]

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