When a business achieves a reduction in production costs through large-scale production, this is known as what?

When a business achieves a reduction in production costs through large-scale production, this phenomenon is referred to as "economy of scale." The core principle behind economies of scale is that as production increases, the cost per unit of production generally decreases. This reduction in cost can be attributed to various factors, such as more efficient use of resources, the ability to negotiate better rates with suppliers due to larger purchase volumes, and spreading fixed costs over a larger number of goods produced.

As businesses expand and produce higher quantities, they can enhance their operational processes and invest in specialized machinery or technologies that further reduce costs. Such advantages allow larger producers to often undercut prices or increase margins, giving them a competitive edge in the market. Understanding economies of scale is crucial for businesses looking to optimize their production processes and manage their supply chain effectively while maintaining ethical procurement practices.