What do economies of scale refer to?

Economies of scale refer to the cost advantages that a business experiences as it increases its level of production. When a company produces goods or services on a larger scale, it often can spread its fixed costs over a larger number of units, which reduces the average cost per unit. This can occur due to a variety of factors, including bulk purchasing of materials, improved operational efficiencies, and greater specialization of labor. As a business grows, it can also negotiate better terms with suppliers, reduce waste, and utilize advanced technology, all contributing to lower costs.

In contrast, the other choices are not accurate representations of economies of scale. Higher product pricing with increased output does not capture the essence of cost advantages, and reduced overhead due to fewer employees does not directly relate to scale but rather to operational efficiency. Lastly, a strategy for product promotion does not connect with the cost-related benefits derived from increased production levels. Economies of scale specifically focus on cost efficiency rather than pricing strategies or promotional tactics.