ABSTRACT
Our discussion of the process of adjustment in the private enterprise economy has been concerned, up to now, with the relationship between capacity and demand. We must now ask ourselves whether entrepreneurs, in the pursuit of profit, will act so as to ensure that given capacity is employed to produce the flow of output which is appropriate at any particular time. Our criterion for appropriateness remains equality between the market price of a good and its CMI, but both price and CMI required to be defined carefully. In the context of long-run adjustment, the relevant price is that which a good will fetch, on average, over the life of the equipment used to produce it, and the CMI relates to the cost of all the marginal inputs required both to construct and employ this equipment. Once capacity is taken as given, the cost of constructing it having already been incurred, we are concerned with the price that a good will fetch at a point of time and the cost of the variable marginal inputs used, in conjunction with the given fixed capacity, to produce it. 1
