in the theory of value and prices. 27 



§ 5. 

 ONE COMMODITY— ONE PRODUCER. 



The definitions of utility in Chapter I apply also to negative util- 

 ity or disutility. Corresponding to all that has been said relative to 

 consumption are analagous remarks for production. 3, 



Thus we may construct a disutility curve and cistern 

 (fig. 3) marginal disutility (O R) being measured 

 upward from the origin. If utility be measured in 

 money as in the last section, O A represents the 

 minimum price at which the individual will produce 

 the commodity, O R the current price and the shaded 

 area (or the cubic contents behind it) the output. ^ 



The marginal disutility of production is here represented as de- 

 creasing as the amount of the product increases. This assumes a 

 " law of diminishing returns." It is true that this law is seldom if 

 ever rigorously true when applied to small amounts ; that is, the 

 cost or disutility of producing the first unit is not less but greater 

 than that of producing the second. But the marginal disutility con- 

 tinues to decrease only up to a certain point, after which it increases. 

 This is usually true even of manufacturing. American bicycle fac- 

 tories are now running behind their orders. If they attempted to 

 run their factories at a higher velocity the cost of the additional 

 product would become greater than its price. Vn general at the 

 actual rate at which a concern produces, the law of increase of dis- 

 utility applies. 



It would be possible by looping the curve MN near the bottom to 

 make a cistern of such a form as to represent correctly both the law 

 of decrease and increase, but as we are chiefly concerned with the 

 point of equilibrium and as at equilibrium the law of increase ^usually 

 applies such complicated curves are not here drawn. 



If a producer has such a productive capacity as to consciously in- 

 fluence prices by a variation of his product, he may find his maxi- 

 mum gain by restricting his output even at a point where the law of 

 decreasing disutility applies ; fol* if he should extend his production, 

 his price might decrease faster than his cost. 



These considerations together with the important one that in a 

 productive enterprise the expenses are classified as " fixed " and 

 "running," make many interesting cases of instability and indeter- 

 minateness and lead to the discussion of monopolies, combinations, 

 rate wars, etc., etc. These each require special analysis. In the 



