What is the term for the cost per unit decreasing as production output increases?

The term that describes the cost per unit decreasing as production output increases is known as "economy of scale." This concept indicates that as a company produces more units of a good or service, the overall costs associated with production tend to decrease. This reduction in per-unit costs occurs due to factors such as spreading fixed costs over a larger number of units, increasing operational efficiency, and negotiating better pricing on bulk purchases of materials.

In practice, economies of scale can lead to competitive advantages in the market. When a business is able to produce goods at a lower cost per unit, it can either lower its prices to attract more customers or maintain its prices while increasing profit margins. This concept is essential for understanding how larger firms can often outperform smaller ones in terms of pricing and profitability.

The other concepts mentioned do not accurately capture this phenomenon. For instance, economy of scope relates to the cost advantages that a business obtains by producing a variety of products rather than specializing in a single product. Cost efficiency refers to the overall effectiveness in using resources to produce outputs, without specifically tying it to changes in output levels. Production maximization involves focusing on maximizing production output without necessarily considering the cost implications per unit.