The issue of returns of scale in bus transit continues to be a subject of debate among transportation analysts. From a public policy perspective, returns to scale are relevant to many policy areas such as transit service pricing, cost allocation, productivity and organization of the industry. Empirical studies conducted during the past decade have generated conflicting results. Constant, decreasing and increasing returns to scale have all been reported. This paper identifies the sources of these conflicting results: confusion regarding the concept of scale economies, variable definition, assumptions regarding the shape of the cost function, and certain characteristics of the data base. The paper also discusses the theoretical concept of scale economies, and an interpretation of the concept for bus transit is presented. It is concluded that recent studies which have utilized generalized cost functions more accurately represent the economic structure of bus transit, and provide a stronger basis for transit policy analysis.