## [Note]

See accompanying letter

In response to small changes in h, the rate of change in profit, k is > the rate of change in price, p if . Now

Now if marginal cost > average cost 1 , is positive [c] = say. So that . if is positive

i.e. if elasticity of demand falls as output rises.

This gives the following general result for a small change in the elasticity of demand

(1) with rising marginal costs--

"The rate of change in profits per unit is greater than the rate of change in price only if elasticity falls as output increases" --if is negative

(2) with constant marginal costs.

whatever be the relation between x and h. However, obviously , which is as in your example on top of p. 86.

(3) with falling marginal costs, if is negative, , but, under certain conditions may be > , so that even in this case the proportionate change in profit may be greater than the proportionate change in prices.

- 1. Harrod,
The Trade Cycle (
1936:8 ).