In the context of economies of scale, what happens as production increases?

As production increases, the phenomenon of economies of scale comes into play, leading to proportionate savings in costs. This means that as a company produces more units of a product, the average cost per unit typically decreases due to fixed costs being spread out over more units. For example, if a factory incurs a fixed cost for equipment or facility management, producing more items allows these costs to be distributed across a larger number of units, thus lowering the cost per item.

Additionally, larger production volumes can enable firms to negotiate better rates for bulk materials, optimize labor and equipment usage, and refine processes, which together contribute to further cost savings. This synergy between output and cost efficiency illustrates why increased production leads to savings in unit costs, making the answer accurate in the context of economies of scale.