Economies of scale is the term used to describe declining average total costs with added firm size.
The average total cost is calculated by dividing the total cost of production by the total output. In other words, the average cost is the sum of the firm's total fixed and variable costs divided by the sum of the units it produces.
The phenomenon known as economies of scale occurs when the scale or magnitude of the production produced by a firm increases while the average cost per unit of output decreases.
Economies of scale describe the reduction in unit costs when a company expands. Increased purchasing power, network economies, technical, financial, and infrastructural economies are a few examples of economies of scale.
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