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 “ in 
creasing 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,