Economics of Scale

Definition: Economics of Scale is a term that is used to describe the reduction in cost-per-unit as more units are produced. For example, if a company makes 500 widgets, they cost the company 10 cents a piece to produce. Another company makes 100,000 widgets, and can therefore purchase the materials necessary to make them for much cheaper than its competitors, so each widget only costs this company 5 cents a piece to produce.