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RECENTLY Mr. R. H. Coase has stated his objections against basing prices on marginal costs, and has argued for what he calls "multi-part" pricing.' The issue has to do mainly with decreasingcost industries, and the multi-part procedure apparently amounts to price discrimination.2 He assumes all costs attributable to individuals responsible for them, all costs incurred currently, and all factors in perfectly elastic supply. The example he uses is the following: the consumers live in a ring around a central market. A carrier takes goods to them from the market. The carrier can take additional packages without any difficulty, within limits sufficiently wide. The income distribution is assumed optimum. Marginal-cost pricing is identified with charging the consumers only the central market price, the marginal cost of carrier-services being zero.3 Multi-part pricing is identified with charging one price for the goods at the central market and another price for the whole services of the carrier.4 In this setting, Mr. Coase makes the following charges against marginal-cost pricing

TH:E following note is the result of a study by the Engineering Experiment Station of Iowa State College. It represents an attempt to find the form of the functional relation between cost and output in an electric light and power plant. A broader knowledge of such relations should be useful in discussions of light-plant economics. For instance, the extent to which the rate schedule should encourage consumption increases depends partly on the shape of the cost curves.

S MR. FOX has suggested, there is great diversity among the procedures currently used or advocated in the analysis of demand. The diversity exists even though all the workers may concur in thinking of the nature of our economic system on the lines of the Walrasian model, consisting of a very large number of simultaneous equations connecting all economic variables. The diversity of procedures appears as soon as the workers try to use their common model for prediction. Unfortunately, the model is only vaguely specified, and is extremely complex. Anyone who wants to use it in clarifying social problems must accept the necessity for simplification. Wherever there is simplification, there are sources of error in prediction. Each worker will choose his own simplification, attempting to avoid the errors that he thinks can be easily avoided, and those that he thinks have serious effects on the appropriateness of social action. Under such conditions, it is not to be expected that there will be any one procedure that ought to be considered the correct one. At least for the present, there seems to be little hope of avoiding a resort to opinion. As price research continues, there may be a consensus among workers to the effect that a certain type of error can be handled conveniently by adopting a specified technique; in such a case, the refinement can be expected to become part of the working knowledge of most researchers. In another case, there may be no feasible way of determining the relative seriousness of a group of errors; in such a case, workers may have to rely on intuition, or on a comparison of computation difficulties. The uncertainty that surrounds our work can be seen by considering the relation between "shock" and "error" models. Assume that one of the equations of a complete economic model is the following