Economies of scale exist where proportionate increases in the amount of inputs employed in a production process result in lower average unit costs

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Economies of scale occur when a business produces more units, resulting in a decrease in the average cost to produce each unit. As the production volume increases, the cost of each unit decreases due to increased efficiency in the production process, spreading fixed costs over more units, and purchasing power discounts on raw materials. Therefore, there is a proportionate decrease in unit cost as the quantity of production increases.

Economies of Scale Exist Where Proportionate Increases in the Amount