What economic principle suggests that increases in production lead to decreases in long run average costs?

The concept of economies of scale is central to understanding how increases in production can lead to decreases in long-run average costs. Economies of scale refer to the cost advantages that a business can achieve due to the scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over a larger number of goods.

As production increases, companies often become more efficient. This efficiency can arise from various factors such as bulk purchasing of materials, improved technology, and better utilization of labor and resources. When fixed costs (such as rent or salaries) are spread over a larger quantity of output, the average cost of each unit produced decreases, enabling the firm to lower prices, improve margins, or reinvest savings into further production.

The other concepts do not address the relationship between production scale and average costs in this manner. Economies of scope focus on the efficiencies gained from producing a variety of products rather than just increasing the quantity of a single product. Fixed costs are expenses that do not change with production volume, but they do not specifically explain how increasing production affects average costs. Marginal cost deals with the cost of producing one additional unit and does not capture the overarching principle of decreasing average costs with increased production levels. Thus, economies