In this section Hicks discusses some of "the above difficulties" -- apparently referring to difficulties of satisfying the conditions of equilibrium when there are economies of scale. One way of proceeding in our analysis is by "sacrificing the assumption of perfect competition." When a firm is to some extent a monopolist, it can set a price above its marginal cost. This may be a necessary condition of profitability, because average cost could sometimes be greater than marginal cost; but the problem with extending the assumption of monopoly too far is that, "Under monopoly the stability conditions become indeterminate; and the basis on which economic laws can be constructed is shorn away."
His conclusion, essentially, is that the only way out of the situation ("this wreck" as he calls it) is to assume that most of the markets that we will analyze are not significantly different from perfectly competitive markets. Thus if prices exceed marginal costs by some percentage, we will suppose that these percentages are "neither very large nor very variable." We will also suppose that diminishing marginal costs are rare, and therefore that marginal costs generally increase with output at the equilibrium point.
Hicks acknowledges that this assumption is a "dangerous step," that may restrict "to a serious extent" the problems that our analysis will be able to address. He is doubtful, though, that the problems thus excluded are even "capable of much useful analysis by the methods of economic theory."
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