What is meant by "Economies of Scale" in a business context?

"Economies of Scale" refers to the advantages a business experiences when it increases its production levels, leading to a reduction in the cost per unit. This concept illustrates how larger volumes of production can allow a company to spread its fixed costs over more units, resulting in lower average costs. When a business produces more, it can often negotiate better pricing with suppliers due to the larger orders, thus leveraging volume for improved pricing and operational efficiencies.

Additionally, companies may achieve efficiencies in processes, labor specialization, and purchasing power, all stemming from a larger operational scale. This means that the more products a business can sell, the cheaper it can produce each individual product, which enhances profitability and allows competitive pricing in the market.

In contrast, other options do not accurately capture the essence of "Economies of Scale." The decrease of product variety reflects a focus on fewer product lines rather than cost efficiency related to scale. The increase in marketing costs with more sales indicates a correlation that doesn't inherently relate to cost savings through scale. Lastly, using only local suppliers may not necessarily contribute to cost efficiencies tied to production volume, and can in fact restrict a company’s ability to take advantage of lower prices from larger, more distant suppliers. Thus, the core understanding of "