How does an increase in production volume relate to economies of scale?

An increase in production volume is directly related to economies of scale, which occurs when the per-unit cost of production decreases as the volume of production increases. This relationship arises because fixed costs, such as overhead expenses and machinery investments, are spread over a larger number of units. As more units are produced, the average cost of each unit typically declines due to the more efficient use of resources.

Additionally, larger production volumes often allow companies to negotiate bulk purchasing discounts for raw materials, leading to reduced variable costs as well. This accumulation of cost savings from both fixed and variable costs results in enhanced profitability and competitiveness, allowing the company to offer lower prices or invest in further improvements.

The other options do not align with the established concept of economies of scale. An increase in production volume does not generally raise production costs; instead, it typically contributes to lower per-unit costs. Moreover, an increase in volume typically leads to increased savings per unit, not the opposite. Lastly, while changes in production volume can affect market competition, this aspect is not directly related to the definition and implications of economies of scale.