Economies of scale are defined as:

The concept of economies of scale refers to the cost advantages that businesses experience when they increase their levels of production. Specifically, as a company produces more units of a good or service, the cost per unit tends to decrease. This reduction in unit costs is primarily due to the spreading out of fixed costs—such as salaries, equipment, and overhead—over a larger number of goods. Additionally, larger production volumes can lead to more efficient use of resources and bulk purchasing discounts on raw materials, which further contribute to lowering the costs.

When a firm operates at a larger scale, it often has greater leverage in negotiating with suppliers and can implement more efficient production techniques, both of which help reduce the average cost per unit. This is why the correct answer highlights the relationship between larger production volumes and reduced unit costs. Understanding this principle is crucial for businesses looking to optimize their manufacturing approaches and remain competitive in the international market.