A reduction in average unit cost as a result of an increase in scale of operations is called .

The reduction in average unit cost as a result of an increase in scale of operations is called "Economies of Scale".

Here's a step by step explanation:

1. Economies of Scale refers to the cost advantage that a business obtains due to expansion. It's a concept in microeconomics that describes the decrease in per unit cost as the volume of production increases.

2. In other words, as a company grows and production units increase, a company will have a better chance to decrease its costs. According to this theory, economic growth may be achieved when economies of scale are realized.

3. This happens because as a company produces more, it can spread out its fixed costs over more units of output, reducing the cost per unit. This is often because the costs of production are not linear (i.e., they do not increase at the same rate as output).

4. For example, a factory that produces 100 units per day will have a lower per-unit cost than a factory that produces 10 units per day, assuming that the larger factory can spread its fixed costs (like rent, utilities, and salaries) over a larger number of units.

5. However, it's important to note that economies of scale can only be achieved up to a certain point. After a certain size, inefficiencies can start to creep in and these can lead to a rise in average costs. This is known as diseconomies of scale.