In production economics, what cost advantage comes from increasing output so average cost falls?

In production economics, the cost advantage from increasing output so average cost falls is called economies of scale.

Economies of scale arise when larger production reduces the average cost per unit. A factory may spread fixed costs across more products, negotiate lower input prices, use specialized equipment, or assign workers to narrower tasks. These benefits can make larger operations more efficient than smaller ones.

Internal economies of scale come from changes within a firm. External economies of scale arise from growth in an industry or region, such as improved suppliers, infrastructure, or worker specialization. The effect is usually represented by a declining long-run average cost curve over a relevant range of output.

Economies of scale do not continue indefinitely. Coordination problems, bureaucracy, congestion, and communication costs can eventually create diseconomies of scale. Economies of scope are different: they concern producing several products together more cheaply than producing them separately.