368 AGRICULTURAL ECONOMICS 



With wide ranges in the costs of production, which cost shall 

 be accepted as the basis of price-fixing ? The average has been 

 seriously suggested but abandoned in disgust when it has been 

 realized that a price fixed on the basis of average costs would 

 probably result in a loss on half the farms. 



The marginal or greatest costs have also been suggested. 

 Economists have a theory that prices tend to equal marginal 

 costs ; this is thought to be true because it is assumed that the 

 man who is producing at a loss will drop out, or, if the supply 

 is short the price will rise to the point attracting others less fa- 

 vorably situated to enter the same line of production, thus 

 tending to maintain the price at a point equal to the greatest 

 cost, though at any given time they might be far apart. There 

 seems to be some relation, therefore, between the highest cost 

 necessary to produce the desired supply and the price which in 

 the long run will have to be paid in order to get the supply. 



Disagreements regarding cost factors. Determining the 

 price at which to charge supplies produced upon the farm 

 presents further difficulties in this regard. Shall feeds be 

 charged at cost of production or at market price ? In calculat- 

 ing the cost of a 1 91 8 corn crop, should the seed corn be charged 

 at the cost of production or at the market price? A similar 

 question arises with respect to seed potatoes. In figuring the 

 cost of milk the question arises : Should the hay, the oats, and 

 the corn produced on the farm be charged on the basis of cost 

 of production or at the market price? There seems to be an 

 accepted rule of accounting which gives definite directions to 

 charge all the produced supplies at cost and not at market 

 price. On the other hand, farm cost accountants connected 

 with the United States Department of Agriculture and the 

 various experiment stations have quite generally charged these 

 produced supplies at market price minus the cost of delivering 

 them to the market. 



A few years ago when the point of view was that of proving 

 that dairying was profitable and an industry which should be 

 stimulated by the press in every way possible, one agricultural 

 paper held tenaciously to the old accounting rule of charging 



