What generally happens to the cost per unit of output as economies of scale are realized?

As economies of scale are realized, the cost per unit generally decreases due to a variety of factors that come into play as production increases. When a company ramps up its production, it can spread fixed costs—such as management salaries, rent, and equipment—over a larger number of units. This spreading of fixed costs results in a lower cost per unit because those fixed expenses do not change with the volume of output. Additionally, companies often achieve operational efficiencies as they produce more, allowing them to negotiate better prices for bulk materials and optimized processes that further reduces variable costs.

Furthermore, as firms increase their production levels, they often gain more experience, which can lead to improvements in efficiency and productivity, thereby lowering the overall costs associated with producing each unit. This combination of spreading fixed costs and enhancing operational efficiencies leads to the general observation that as production increases, the cost per unit tends to decline.