single producer, and, as a result, prices tend to be controlled or limited by the expenses of production. The competitive producer cannot increase his profits by limiting the supply, and it is on this account that the law regards competition as one of the main pillars of our present social order.

The monopolist will normally endeavor to fix his output at such a point that, given the existing state of demand, he will secure the highest possible net returns. On the one hand he has to face the fact that although he can increase his gross receipts up to a certain point, by increasing his output, yet the increase in gross receipts will not be proportionate to the increase in output, for the simple reason that the increased output will not find buyers except at a lower price per unit. On the other hand an increase in his output will always increase his aggregate expenses of production, although here again the increase (in expense) may not be proportionate to the increase in output. In particular there are likely to be some permanently fixed expenses which will be the same for a small output as a large one, and there may be other expenses which will not increase unless the output should be made much larger than would be profitable. Indeed, it may often happen that the fact that a large output would make it necessary to increase certain expenses which would otherwise be fixed (such as the cost of the plant) may lead the monopolist to choose to produce a relatively small quantity of goods. The following table shows in parallel columns the number of sales of a monopolized good at different prices, the total resultant receipts, the variable expenses, the fixed expenses, the total expenses, and, finally, the net revenue or monopoly profit. For the sake of simplicity it is assumed that all of the fixed expenses are permanently constant, at least for such possible increase of output as the monopolist cares to consider.

Study of the table will show that, in the case assumed here, the monopoly price will stand at six cents. It would be possible for the monopolist to produce 5,500,000 units, for this would give him a net profit of $5000. But since he can control the supply, he will limit his output to 2,500,000 units, giving him the maximum net return, $25,000.

But the case assumed here is in many ways far simpler than the cases presented by real life. The monopolist may not be able easily to hit upon just the price that will yield maximum net profits. He may, by experimenting a little, approach more closely to it, but at best he can hardly hope to reach more than an approximate maximum. Or it may be that the monopoly is one in which the price is fixed by custom or convenience (as is in some measure true of street railway transportation), so that the monopolist can vary only the quality of the commodity or service he sells at the established price. Moreover, it should be noted that the price most profitable for the present may not prove the most profitable price in the long run. The monopolist may choose to forego some of his possible profits this year in order to extend the field of demand for his product and to lay the foundation of a long-continuing period of profitable production. Furthermore, in view of the possibility of the public regulation or public ownership of his business, he may deem it expedient not to arouse public hostility, and so may decide to sell at a price lower than what would, for the time being, be the most profitable price.

The Effect of a Tax. Our numerical illustration may be made to convey a lesson regarding the influence of taxation upon monopolies and monopoly price. Fixed expenses have no influence in determining the price. If, therefore, a fixed tax, say of $5000 a year, were to be laid upon this monopoly, it would not result in an increase of price. A study of the table will show

that with such a tax the net revenue at price .08. would be $5000; at price .07, $17,000; at price .06, $20,000; at price .05, $15,000; at price .04, nothing. Thus price .06 will still be the point of maximum nét revenue, and hence the monopoly price. On the other hand, a variable tax, for instance a tax of one cent per unit, would result in this case in raising the monopoly price. In our illustration, such a tax would make the net revenue at the price .08,- $2000; at the price .07, $4000; at the price .06, nothing; at the price .05,- $15,000. Thus, though the monopoly would find its profits greatly curtailed by such a tax, consumers would be compelled to pay one cent more per unit for the monopoly product. The possible advantage which society might draw from the tax would therefore be wholly or in part offset by the increased cost of the commodity. We may conclude, therefore, that fixed taxes, or taxes on the net revenue of a monopoly, cannot be shifted wholly or in part by a change in price; while taxes laid in proportion to the amount of business, since they contribute an addition to the variable expenses, may be wholly or in part shifted by a change in price.

Relation of Demand to Monopoly Price. - There are certain conditions on the side of demand which have a decisive influence in determining monopoly price. The most important of these is the degree of elasticity of the demand for the monopoly product. The more inelastic the demand for the monopolized commodity or service, the higher will be the monopoly price which will yield the greatest net returns. If a commodity is a necessity of life, and is so habitually consumed that people cling with intensity to it, monopoly will, other things being equal, be more profitable than if the commodity were one which consumers thought they could easily dispense with. This helps to explain why salt and tobacco have been chosen as fit objects for public fiscal monopolies. The more adequate the substitutes for a commodity, the smaller will be the opportunity for surplus profits which a monopoly of that commodity will give. Finally, the higher the general average of economic well-being, and the more readily money is generally expended, the higher will be the monopoly price which will yield the largest net returns.

Thus monopoly, without any effort of its own, shares in the increasing wealth of a country, and absorbs a considerable part of it. It is, for example, among other influences, the larger wealth per capita and the greater willingness to spend freely that makes monopoly more profitable in the United States than in Germany or other European countries.

Class Price. Thus far we have assumed that the monopolist charges one uniform price and sets the price at the point which yields him the largest net returns. But it is obvious that his gains will be increased if he is able to vary his price. His gains would be highest if he could charge each individual that price which would yield the largest net returns, taking into account the number of sales and profits on each. A rich man might pay double the current rates for gas or electric light without diminishing his consumption in the least. But in the case of any large modern business it is obviously impracticable to fix a price for each individual, even were there no legal difficulties in the way, as there are in the case of the great monopolistic businesses such as gas and electric lighting and railway transportation. The next best thing for the monopolist is to divide his public into classes, and to charge to each class that price which will yield the largest net returns. In the table already given, we found that six cents was the monopoly price on the hypothesis of one uniform price, but obviously, if the eight-cent and seven-cent prices could be secured, and six cents reserved as a price for sales that could not be made at eight or seven cents, the profits would be still higher. This gives rise to what, in its broad, general terms, we call class price. The monopolist seeks in every possible way to divide his community into classes and to secure from each the highest possible price. We observe a remarkable development of class price in the case of our railways; and, unless legal obstacles are interposed, this development will doubtless go still farther. We have special trains with an extra charge. We have privately owned railway coaches; our drawing-rooms and single seats in "parlor cars "; our ordinary first-class tickets; and our second-class tickets, the purchasers of which frequently ride in the "day coach" with the first-class passen

gers. Then we have single tickets, fifty-trip family tickets, monthly commutation tickets, etc., with enormous variations in price. We may go farther and say that the American railway rate system of "charging what the traffic will bear" is a consummate example of monopoly prices.

Nor need it be supposed that in all its ramifications class price is a bad thing. It is, when ignorance and need are exploited by a special high price; frequently it works well when an attempt is made to reach a class of limited means with a very low price, as in the case of early and late workingmen's trains, etc.

Monopoly price will vary with use also; and this is one special subhead under class price, and may be designated as use price. The typical instance is that of two prices sometimes charged for gas: a higher when it is used for illuminating purposes; a lower when it is used for fuel.

Monopoly Price High Price. It is often said, and frequently even in judicial decisions, that the monopolist can charge any price that he pleases. We have already seen that this is not the case. The law of monopoly price shows that the price, even in the case of monopoly, is determined by economic forces. It is conceivable that there may be cases in which monopoly price will exactly coincide with competitive price, although the probabilities would be against a frequent coincidence of this kind. There are also cases where monopoly price may be even lower than competitive price. If a monopolist should be able to effect great savings as compared with the expense of doing business under competition, it could happen, in theory, that the price which would yield the largest net returns would be a lower price than would be possible under competition. Probably, and in fact almost certainly, under a condition of competition, letters could not be carried as cheaply as they are.

Generally there are strong reasons for the position that monopoly price is high price. Monopoly is formed for the sake of gain. Gain may be secured in two ways by monopoly: first, through economies of production; and it is alleged by trust promoters that these economies are a chief motive in their activity. There are some gains of this kind, but what their magnitude