What best describes economies of scale?

Economies of scale refer to the cost advantages that organizations experience as they increase their size and production output. When a company expands, it typically spreads its fixed costs over a larger number of goods or services, leading to a reduction in the per-unit cost of production. This can occur due to various factors, such as bulk purchasing of materials, specialized labor, and more efficient operational processes. As a result, larger organizations can often produce goods at a lower average cost compared to smaller firms, allowing them to improve their profitability and competitive position in the market.

In contrast, smaller organizations typically encounter disadvantages, such as higher per-unit costs, due to inefficiencies. Higher costs associated with larger organizations do not align with the concept of economies of scale. Additionally, while a reduction in workforce size may occur for different reasons, it is not inherently tied to the concept of economies of scale, which focuses primarily on cost efficiency and production benefits associated with increased scale.