ABSTRACT
It has been seen that for each firm with a given equip ment the cost of production per unit will vary with the number of units produced in a given time (of course the difference may be inappreciable with moderate variations in quantity). It follows that the same is true of the industry as a whole. Up to a certain point the larger the quantity of goods which can be sold the lower will be the supply price ; beyond that point the higher it will be. At any given time, therefore, an increase in the amount which can be sold may lead to a rise or a fall in the supply price. If an industry has not been disturbed by any inventions or re-organization, its equipment will be so adjusted to the normal supply that should there be a sudden large increase in the amount demanded (for instance, an increased demand for medical stores due to the outbreak of an epidemic) it will only be possible to suddenly increase the supply at an increasing cost. That is to say it will only be possible to do so by over-crowding the factories, working overtime, employing unskilled labour, and by adapting factories intended for other forms of manufacture and therefore not so suitable. If, how ever, it is anticipated that the demand has permanently increased, then it may be considered worth while to provide additional equipment and to train new workers. When this new equipment is ready, the cost of production per unit will probably fall again and may even fall below the original price. It is possible then that in the long run an increased demand may lead to a lower price. That is to say, cost of production may increase in the short run but decrease in the long run. There is no definite period which
can be called the short run, the length of time which must elapse before new equipment can be provided varies from industry to industry. In some a few weeks would suffice, in others months or even years must elapse (e.g., to build a blast furnace takes about 15 months, to sink a new coal mine several years) (B. H. Robertson, Industrial Fluctua tions, ch. 1.)
But it may not always be possible to increase the equip ment, or at any rate to supply equipment of an efficiency equal to the old. In many forms of agricultural produc tion it is only possible to increase the supply by cultivating land less suited for that purpose. (*.£., it would only be possible to greatly increase the supply of fresh milk in England by pasturing cows on land more suitable for grazing sheep).
