What concept refers to the decrease in average cost per unit as production increases?

The concept that refers to the decrease in average cost per unit as production increases is known as economies of scale. This phenomenon occurs when a business is able to spread its fixed costs over a larger number of units, thereby reducing the cost per unit. As production scales up, companies can often negotiate better terms for bulk purchases, utilize their resources more efficiently, and take advantage of specialized equipment and labor.

In contrast, diminishing returns refers to a situation where adding more of one factor of production while keeping others constant leads to smaller increases in output. Operational efficiency involves maximizing output from given inputs, but it does not specifically refer to the cost aspect as production increases. Cost minimization is a broader term that refers to strategies aimed at reducing costs but does not inherently address the relationship between increasing production and decreasing average costs. Therefore, economies of scale directly captures the relationship being asked about in the question.