The term "economy of scale" refers to the cost advantages that businesses can achieve when they increase their level of production. As a company produces more goods or services, the fixed costs can be spread out over a greater number of products, resulting in lower per-unit costs and ultimately higher profitability. In other words, as a firm grows and expands its operations, it is able to take advantage of efficiencies that allow them to produce their goods at a lower cost than smaller competitors. This concept is often used to explain why larger companies can sometimes offer products or services at lower prices than smaller firms.