Which term refers to the efficiency gained by larger volumes of production?

The term that refers to the efficiency gained by larger volumes of production is economies of scale. This concept describes the cost advantages that businesses experience as they increase their level of production. When a company produces more units, the average cost per unit typically decreases due to factors such as fixed costs being spread over a larger number of goods, bulk buying discounts for materials, and improved operational efficiencies.

For example, a factory that operates at a higher production level may be able to negotiate better prices for raw materials or use machines more effectively, leading to overall cost reductions. As production scales up, companies can also optimize their processes, leading to increased productivity and further reductions in cost. This principle is a key consideration for businesses when planning growth strategies, as understanding and leveraging economies of scale can significantly impact profitability and competitive advantage.