68

POLITICAL  ECONOMY

to  some  extent  by  the  greater  scope  afforded
for  specialism.
We  are  here  in  touch  with  the  conceptions  of
increasing  and  decreasing  returns.  When  the
enlargement  of  an  industry  is  accompanied  by
a  rise  in  marginal  cost  it  is  usual  to  say  that
the  industry  is  subject  to  decreasing  returns.
But  when  the  enlargement  of  an  industry  is
accompanied  by  a  fall  in  marginal  cost,  it  is
usual  to  say  that  it  is  subject  to  increasing
returns.  When  marginal  costs  remain  the
same  it  is  said  that  the  industry  is  subject  to
constant  returns.  Why  these  phrases  “  increasing ­
  returns,”  “  decreasing  returns,”  and
“  constant  returns  ”  are  employed  in  the
cases  imagined  will  be  readily  grasped.  If
the  cost  of  production  of  the  new  marginal
firm  is  beneath  that  of  the  old  marginal  firm,
the  output  per  unit  of  cost  of  the  former  firm
must  be  greater  than  the  output  per  unit  of
cost  of  the  latter.  The  outputs  or  returns  of
the  industry  at  the  margin  will,  therefore,  have
increased  with  an  extension  of  the  industry.
Hence  the  use  of  the  term  “  increasing
returns,”  and  the  equal  appropriateness  of  the
terms  “  decreasing  returns  ”  and  “  constant
returns  ”  in  the  cases  to  which  they  apply.
The  conceptions  of  increasing,  decreasing,