In the context of economies of scale, what generally happens to cost per unit as production increases?

In the context of economies of scale, as production increases, the cost per unit typically decreases. This phenomenon occurs because fixed costs, such as rent and salaries, are spread over a larger number of units produced. Consequently, the average cost per unit declines as more units are manufactured. Additionally, businesses often achieve operational efficiencies at higher production levels, such as bulk purchasing of materials at discounted rates or improvements in technology and processes that reduce variable costs.

This reduction in cost per unit allows companies to be more competitive in the market. By lowering prices or increasing profit margins, firms can take advantage of their economies of scale to gain further market share or invest in business growth.