46 MULTIPLE PURPOSE RIVER DEVELOPMENT 



if we assume profit maximization governs his decisions, is marginal 

 revenue equal to marginal costs, and the former will always be 

 below market price.^^ Accordingly, the condition that marginal 

 costs be equal to the corresponding product price will not be met 

 under such conditions. Moreover, if prices are used as guides to 

 production and investment, the price under these conditions will 

 not represent an invariant scale with which to weigh the value of 

 the resulting output. 



Viewed from a different perspective, when the minimum cost 

 factor proportions require a scale of plant and rate of output that 

 are large in relation to the market served, it is possible that the 

 producers will be operating under conditions of declining average 

 costs. ^® That is, the larger the output within the relevant range, 

 the lower becomes the average unit cost because of the internal 

 economies of scale. Within this range, marginal cost will be lower 

 than average cost, since increments to output must be produced 

 below the cost of preceding units in the sequence to cause the 

 average to decline. Yet, if efficiency requires that output be pushed 

 up to the point at which the cost of an additional unit is just 

 equal to its market valuation, the block of output priced at 

 marginal cost will not return full cost. 



Conditions of this sort result in what is termed technical 

 monopoly. Where the decreasing-cost nature of an industry is 

 recognized, one solution is to grant legal sanction for exclusive 

 access to a market territory in exchange for the assumption of a 

 public utility responsibility. A companion solution involves 

 providing the service as a public venture in adjacent marketing 

 territories, as a form of countervailing power to assist in social 

 regulation of franchised private monopoly. Whatever the solution 

 in a pragmatic sense, it is not contained within the framework of 

 the competitive model. 



"See Kenneth E. Boulding, Economic Analysis (New York: Harper, 1948), 

 p. 528; or for a more detailed graphical exposition of the identical phenomenon, 

 see Joan Robinson, The Economics of Imperfect Competition (London: Mac- 

 millan and Co., 1933), Book i, Chapter ii. 



^* For an empirically demonstrated example, see Leslie Cookenboo, Jr., Crude 

 Oil Pipe Lines and Competition in the Oil Industry (Cambridge: Harvard Uni- 

 versity Press, 1955), Chapter i. 



