In the preceding illustration we assumed that the competing producers D and E produced the good x under conditions of increasing costs. This condition resulted in making the supply curve an ascending one as it moves from left to right. In case the good x were produced at a uniform cost per unit, whatever the number of units produced, the supply curve would be represented by a straight line parallel to OX. And under competing conditions the price of the goods would be fixed at the point where this line crossed the demand curve. In other words, the market price would be equal to the cost of production of each of the units of the good, whereas in the preceding illustration the selling price was equal to the cost of production of the marginal unit produced.

Where additional units are produced at diminishing costs, the supply curve will descend as it moves from left to right. In this case the supply curve represents average costs per unit rather than marginal costs. Production under conditions of diminishing costs furnishes favorable soil for monopoly.