Economies of scale refers to a situation where the average cost per unit of output decreases as the number of units produced increases. For example, think about the costs of running a restaurant. You will need to rent a space, hire cooks and waiters at a total cost of US$1000 per night. Not taking into account the costs of the specific ingredients, if you only sold one dish per night, you would need to charge at least US$1000 to break even. However, if you sell 100 dishes in one night, you can sell then at US$10 each in order to break even. When shared costs (in this case space, chefs and waiters) are spread across a greater number of units, the unit costs decrease.