What is the term for the reductions in average costs enjoyed by a business as output increases?

The concept referred to in the question is best described by economies of scale, which occur when a business experiences a decrease in the average cost of production as it increases its output. This reduction in costs can arise due to various factors, including the ability to spread fixed costs over a larger number of goods, bulk purchasing of materials, and improved efficiency in production processes as output increases.

While internal economies of scale specifically refer to cost savings realized within the company itself, such as operational efficiencies or enhanced bargaining power with suppliers, the broader term ‘economies of scale’ encompasses both internal and external factors. External economies of scale, on the other hand, occur due to the growth of the industry within a region, benefiting all firms in that sector rather than an individual company. Lastly, minimum efficient scale pertains to the smallest output level at which a firm can minimize its average costs, which is a related but distinct concept from economies of scale.

By choosing economies of scale as the answer, we acknowledge that the question pertains to the overall reduction in average costs due to increased production levels, which is the primary characteristic and definition of this economic principle.