ABSTRACT
Decisions about the prices and outputs of a public enterprise will result in particular total revenue and total costs and a corresponding profit or loss. It has been usual in theoretical discussions of public-utility pricing to say that, when prices are equated to marginal costs, there will be a profit or loss according to whether the enterprise suffers increasing or decreasing costs with respect to scale. While accounting profits and the accounting rate of return are thus poor guides in themselves, they happen to be closely related to what is a significant magnitude, namely the net cash flow between a public enterprise and the Exchequer. Both revenue and costs depend, among other things, on the level of prices charged by the public enterprise. The cash flow requirement laid upon the public enterprise is equivalent to a set of taxes upon its products.
