MILK PRICES 193 



sive portion of the product is necessarily the marginal 

 product in the sense that it will be the first to be with- 

 drawn in case price falls. It may be, and indeed often is 

 a more cheaply produced portion of the supply which is 

 withdrawn when price falls, because what we may call 

 the real cost of production often includes an "opportunity 

 cost," that is, the sacrifice of an opportunity to do nearly 

 as well at some other line of production. Then when the 

 milk price falls slightly, this alternative line becomes the 

 more attractive and causes the producer to change, even 

 though his actual money and labor costs are not the high- 

 est. We must, therefore, think of the marginal producer 

 not as the man who produces at the highest cost, but as 

 the man who is just barely induced to continue to supply the 

 product. This definition obviously will include both the 

 man who is producing at a high cost and the man who has 

 a high opportunity cost. An example will make this 

 clear: 



Suppose that with the price of milk at $3.00 per hun- 

 dredweight farmer A just succeeds in making a living and 

 paying all necessary expenses. He is a marginal producer 

 in either of the above senses. Farmer E, however, may 

 be producing milk at an expense of but $1.60 per hundred- 

 weight, which leaves him a profit of $1.40 per hundred- 

 weight, and still be as truly a marginal milk producer as 

 A in the sense that any reduction in the milk price may 

 induce him to cease producing because he can make more 

 at some other line of farming. The withdrawal of E's sup- 

 ply of milk would as surely create a shortage as would the 

 withdrawal of A's supply; yet one produces at a cost of 

 $1.60 and the other at a cost of $3.00, and both would 

 withdraw from production if the price fell to $2.90. Indeed 

 E might withdraw first, because he is a more capable 



