Economies of scale refer to the cost advantages that businesses experience as they increase their production levels. When a company produces more goods, the average cost per unit typically decreases. This happens because fixed costs, like machinery and rent, are spread over a larger number of products, reducing the cost for each item. As companies grow, they can also negotiate better prices for raw materials and improve operational efficiency. This can lead to lower production costs and higher profit margins. Overall, economies of scale can help businesses become more competitive in the market, benefiting both the company and consumers through lower prices.