Take shoes, for instance. The manufacturer must take into account the cost of leather and other ma terials, the wages of labor, the cost of machinery and its depreciation, and finally the market demand at prices which will yield him profit. These are things which he cannot control, yet upon them depend his costs of production and the price of his product. He has control solely of the amount of his own output; he knows the amount that be can produce with his present plant and he has pretty carefully estimated the probable output of his competitors, and he may decide that any increase of output by him or by any other manufacturer would tend to demoralize the market and compel sales at lower prices, even tho the cost of making a pair of shoes bad not declined.
In all industries, therefore, there is constant effort on the part of managers to keep their output at the point which shall yield them maximum profit. In an industry where there is absolute freedom of competi tion this is one of the manager's hardest problems.
10. Counteracting forces.—Wherever the law of diminishing returns applies, each increase in product is obtained at an increased cost. While this is true for a given time and a given procedure in industry, it does not follow that only thru increased cost per unit can there be an increase of product. Increase in the efficiency of capital and labor may effect a corre sponding increase in prodnction. The progress of civilization, as shown in inventions, better methods of transportation, the lessening of taxation, improN-e ments in education, tends to lessen the cost of produc tion, and it is therefore bound to bring about greater returns from the application to nature of capital and labor. As John Stuart Mill says: "There is scarcely any possible amelioration of human affairs which would not, among its other benefits, have a favorable operation, direct and indirect, upon the productiveness of industry."
It was the improvement in agricultural machinery and the extension and cheapening of transportation facilities that brought the western lands of the United States and Canada into the wheat-producing area and made them profitable because of a lessened produc ing cost. The rise in the price of an ore will bring a mine into the mark-et with its product, while a, lowering of the price will exclude it. This is fre quently illustrated in the case of bituminous coal.
Improvements in production have the same effect. The immense depths of the copper mines in northern Michigan ,are accounted for by the rise in the price of copper, and the marked improvements in pumps, engines and drills as well as in 'mining technic. Yet without question the increase in the temperature at the lower depths of the mines, the large amount of water to be pumped out, and the gradual lessening of the supply will in time.bring about an increased cost of producing the supply. Unless there is a corresponding rise in the price of copper such mines will be forced into the margin of' production, where their owners will be confronted by the question whether to continue at a, loss in the hope of better prices,. or to abandon operations. Furthermore, the bistoi-y of mining records many instances where a, rise in the price of the product bas led to the re working of properties once abandoned.
The law of diminishing returns, while it is true and does apply in an industry at a given time, is not to be extended in its application from one season to an other, or from one period to another, without taking into consideration the introduction of machinery or new methods of production which may change the ratio of return.