hing that happens is an improvement made by _a_,
causing his cost of production to fall below that of _b_.
The resulting fall in price now finally drives _e_ out of
business; he can no longer earn anything at all on his fixed
plant. We may assume that producers _a_, _b_, and _c_, who
have been making profits, have enlarged their productive
capacity enough to supply the market fully without _e_'s
contribution. _d_ is now in the same position in which _e_
was at the preceding stage,--earning nothing on his fixed
establishment and barely induced to remain in the business.

The next occurrence represented is the opening of a new,
large, and very efficient mill by _f_. The effect is like
that of improvements, but more violent. The fall in price
drives both _d_ and _c_ out of business. _b_ is now on the
margin, but saves himself from loss by a second improvement,
which makes him again the most efficient producer. And so the
process goes on _ad infinitum_.

This figure illustrates the fact that, while at any time the
price of a good roughly equals the cost of it to the least
efficient producers, still this cost does not _govern_ the
price. The ruling factor is the cost in the most efficient
mill, toward which the price tends; and all that the cost in
the least efficient mill determines is how long that mill
shall continue running.

In order that the claim here made--that price equals cost in
the establishment which is about to be crowded out of the
field--may hold good it is necessary to define terms with
some care. In a typical case an employer who is destined soon
to close out his business has, perhaps, an antiquated mill,
which itself pays nothing, but enables its owner to use
circulating capital and labor in a way that affords interest
on that capital and wages for the labor. No interest on the
cost of the antiquated mill is chargeable to the business
unless the site and the building can be sold for a new
purpose. If they have completely lost all productive power,
they are not, as we use terms, capital goods at all; and in
that case the only interest which the _entrepreneur_ should
reckon as a cost is that which accrues on other capital used
in connection with the worthless mill. If the site and the
building have some value for another purpose, and if the
mach