CH. 6 THE DEFINITION OF INCOME 53

the end of the period is the net result of the entre-preneur, on the one hand, having maintained and im-proved it during the period, both by purchases fromother entrepreneurs and by work done upon it byhimself, and, on the other hand, having exhausted ordepreciated it through using it to produce output. Ifhe had decided or to use it to produce output, there is,nevertheless, a certain optimum sum which it wouldhave paid him to spend on maintaining and improvingit. Let us suppose that, in this event, he would havespent B´ on its maintenance and improvement, andthat, having had this spent on it, it would have beenworth G´ at the end of the period. That is to say,G´- B´ is the maximum net value which might havebeen conserved from the previous period, if it had notbeen used to produce A.‘The excess of this potentialvalue of the equipment over G- A1 is the measure ofwhat has been sacrificed(one way or another) to pro-duce A. Let us call this quantity, namely

(G´- B´)-(G- A1),

which measures the sacrifice of value involved in theproduction of A, the user cost of A. User cost will bewritten U.1The amount paid out by the entrepreneurto the other factors of production in return for theirservices, which from their point of view is their income,we will call the factor cost of A. The sum of the factorcost F and the user cost U we shall call the prime costof the output A.

We can then define the income2 of the entrepreneur asbeing the excess of the value of his finished output soldduring the period over his prime cost. The entre-preneur’s income, that is to say, is taken as being equalto the quantity, depending on his scale of production,which he endeavours to maximise, i.e. to his gross profit

1 Some further observations on user cost are given in an appendix to thischapter.2 As distinguished from his met income which we shall define below.