CH. 6 APPENDIX ON USER COST 69

that is to say, to the point of zero net profit; whilst with asmaller output than this he is trading at a net loss.

The extent to which the supplementary cost has to be pro-vided for apart from the prime cost varies very much from onetype of equipment to another. Two extreme cases are thefollowing;

(i) Some part of the maintenance of the equipment mustnecessarily take place pari passu with the act of using it (e.g.oiling the machine). The expense of this (apart from outsidepurchases) is included in the factor cost. If, for physicalreasons, the exact amount of the whole of the current deprecia-tion has necessarily to be made good in this way, the amount ofthe user cost (apart from outside purchases) would be equal andopposite to that of the supplementary cost; and in long-periodequilibrium the marginal factor cost would exceed the averagefactor cost by an amount equal to the risk and interest cost.

(ii) Some part of the deterioration in the value of the equip-ment only occurs if it is used. The cost of this is charged inuser cost, in so far as it is not made good pari passu with the actof using it. If loss in the value of the equipment could onlyoccur in this way, supplementary cost would be zero.

It may be worth pointing out that an entrepreneur does notuse his oldest and worst equipment first, merely because its usercost is low; since its low user cost may be outweighed by itsrelative inefficiency, i.e. by its high factor cost. Thus an entre-preneur uses by preference that part of his equipment for whichthe user cost plus factor cost is least per unit of output.1 Itfollows that for any given volume of output of the product inquestion there is a corresponding user cost,2 but that this totaluser cost does not bear a uniform relation to the marginal usercost, i.e. to the increment of user cost due to an increment in therate of output.

II

User cost constitutes one of the links between the presentand the future. For in deciding his scale of production an

1 Since user cost partly depends on expectations as to the future level ofwages, a reduction in the wage-unit which is expected to be short-lived willcause factor cost and user cost to move in different proportions and so affectwhat equipment is used, and, conceivably, the level of effective demand, sincefactor cost may enter into the determination of effective demand in a differentway from user cost.

2 The user cost of the equipment which is first brought into use is notnecessarily independent of the total volume of output (see below); i.e. the