Submitted to the Foculty of Groduqte Studies ond Reseorch in portiol ...

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with thes€ words:
-14-
"It is conceivqble thot o descriptive price theory
moy be propounded in which the distinctive feotures
woul.d b€ thot, on the whole, businessmen determine
their prices on the bqsis of the fulÌ-cost principle,
in considerotion of the reoctions of consumers
lut
ond th€ behdviour of competitors, etc., on odjustment
to the prices which futfil the conditions of ths morgi-
nol theory tokes plqce - êven though this odjustment
moy quite possibly be imperfect.,, (Rêf. I p. 22a.)
Thê full-cost prícing system is highly operotionol. This
tends to be overl.ookêd, becouse conventionol theory foils to
inclu{e inventory ond order bocklog voriobles. Firms do not hove
to sêIl oll their output in ony given time p€riod. If too much
is produced, there brill be o build-uÞ of inventories or o
reduction of order bocklogs; if, on the other hond, too littte
ís produced, inventories will bê drown dourn or. delivery time
êxtendëd. These chonges, in foct, provide both buffers to
compensote for production imbolonc€s ond feedbock sigñoIs to
focilitote odjustment to demond.
:
In sum, th6 cost principle, with oll it implies, is the
Dqnish method of defining workobl.e competition. An Índustry is
h,orkobly competitíve when efficiently run enterprisês cover their
necossclry cost6 íncluding d€preciqtion ollo\,,,onces, plus .o
reosonoble n€t profitr due regord being hod to risk.