SECTIONAL TRANSACTIONS— F. 457 



influences which affect their decisions on such matters as output and price 

 policy. The answers suggest that in many cases there is an attempt to 

 fix prices on the basis of average costs, using an estimate of turnover in 

 order to allocate overheads. The power to hx prices is due to market 

 imperfections : but though the demand is often thought to be inelastic, 

 little attempt is made to exploit this. 



In works on economic theory it is usual to state that profit is maximised 

 when marginal cost is equal to marginal revenue. In the long period the 

 price must cover average cost, including normal profit, and when there is 

 free entry to the industry it is not likely to be much more than this. The 

 changes of price in the direction of full cost are explained by changes in the 

 number and size of sources of supply in the industry. 



The paper discusses the relation between the economist's view of profit- 

 able behaviour and the actions which appear to be characteristic of business 

 men who try to sell at full cost. The conclusion is reached that there is 

 often an element of oligopoly which makes neither of the hypotheses, of 

 competition and of monopoly, applicable. There is a tendency for price 

 to remain at the point where it happens to be at any time, unless the costs 

 of all firms in the industry change together. A discussion is given of the 

 factors determining the price point, and the view is taken that it is most 

 likely to be at full cost. If this is so, the long period competitive price is 

 reached more directly than is sometimes supposed. 



Mr. G. D. A. MacDougall. — Overhead costs and economic welfare (12.0). 



Schemes of output restriction and of compulsory scrapping of equipment 

 are often advocated as a means of maintaining the earning power of invested 

 capital. Such schemes are in general regarded by the economist as con- 

 flicting with the public interest ; but it is suggested in this paper that they 

 may in some cases be justified. 



Current decisions to remain in business and to produce depend on long 

 term expectations. Even in perfectly competitive conditions (given full 

 employment) there may therefore be wasteful maintenance (in the widest 

 sense) and wasteful production, from the community's point of view, if 

 long term expectations are over-optimistic. Over-optimism is probable in 

 declining industries, and there may therefore be a case for compulsory 

 restriction of output and scrapping of equipment. 



In imperfectly competitive conditions there may be a case for compulsory 

 scrapping for a different reason, but not normally for output restriction. 



When there is not full employment, policies that would otherwise be 

 ' ideal ' will still in general be desirable if they do not diminish national 

 employment. It is possible to devise a method of analysis that may be of 

 assistance in deciding under what conditions a so-called ' ideal ' policy of 

 reorganisation is likely to increase, and under what conditions it is likely to 

 decrease, national employment. 



Wednesday, August 24. 



Mr. P. Barnett Whale. — International short term capital movements 

 (lo.o). 



The paper aims at making a classification of international short term 

 capital movements with a view to showing their effects on monetary 

 circulation, trade, prices and incomes in the countries concerned. The 



Q2 



