| HIGHWAY
|
|
A--------------------------------B
RAILROAD
]

_A Simple Case of Special Costing Applied to Certain Traffic._--We
will suppose A and B are connected by a railroad, while C and B are
connected by a highway over which transportation proceeds by the
primitive means of horses and wagons. It is like one of the cases we
have already stated, with the exception of the fact that the carrier
over the longer route is a railroad. The limit of what the railroad
can get is the natural difference between the cost of making the goods
at A and the combined costs of making them at C and carrying them to
B. This definitely limits the railroad charges. Whatever difference of
cost there is the railroad can get if it chooses, and barring any
deduction it may make in order to induce production at A and make
traffic for itself, it will get it. The rate which is fixed for the
railroad may be sufficient to cover the total costs chargeable to this
portion of its traffic on the simple and _pro rata_ plan of costing,
or on the other hand, it may cover only a portion of the fixed costs
or no portion at all. This means that the standard which is set by the
differing values of the goods at A and at B may or may not yield a
profit to the railroad. If it is so slight as not to cover even the
variable costs of carrying the goods, the railroad will not carry
them, and the supply will be allowed to come from C rather than from
A. If it covers more than these variable costs, the road will accept
and carry the goods. If the traffic affords any appreciable margin
above the variable costs, it will be the policy of the railroad to
make its charges low enough to attract the traffic, and this will
slightly reduce the place value of the goods at B and bring it below
the cost of procuring them from C. The railroad will thus secure the
whole traffic to the exclusion of that which came from C. If the costs
of making the goods at A and C are alike, then the charge for carrying
from A to B will be just enough below the total costs of carrying in
wagons from C to B to stop the carrying over this shorter route and
appropriate the whole business; but this charge may not cover total
costs of carrying from A. It may yield only a slight margin above the
variable costs attaching to this part of the railroad's business. It
thus appears that this carrier can with ad