What is the term for reductions in a firm's unit costs of production that occur due to an increase in the scale of operations?

The term that refers to reductions in a firm's unit costs of production as a result of increasing the scale of operations is economies of scale. This concept captures the idea that as companies produce more units of a good or service, they often experience lower costs per unit. This cost reduction can arise from various factors, such as spreading fixed costs over a larger number of units, gaining discounts on bulk purchases of materials, or benefiting from more efficient production techniques that become feasible at larger scales.

Operational efficiency relates to how well an organization uses its resources, but it does not specifically address the cost benefits obtained from scaling operations. Cost leadership involves a business strategy aimed at becoming the lowest-cost producer in the industry but is not synonymous with the phenomenon of cost reductions through scale. Earning margin refers to the difference between revenue and costs, reflecting profitability rather than the cost advantages derived from increasing production levels.

Thus, economies of scale provides a precise description of the situation where a firm achieves lower average costs due to higher production volumes.