Final answer:
The economy of scale refers to the reduction in cost per unit resulting from increased production, therefore the correct answer is decreasing costs through the production of larger quantities. Option B.
Step-by-step explanation:
The term economy of scale refers specifically to the situation where, as the quantity of output increases, the cost per unit decreases.
This means that as a company produces larger quantities of a good or service, it can achieve lower costs due to factors such as spreading fixed costs over more units, negotiating bulk discounts on materials, or more efficient use of production techniques.
The correct answer to the question is 'b. Decreasing costs through the production of larger quantities.'
In contrast, diseconomies of scale occur when increasing production leads to higher costs per unit, and constant returns to scale occur when the cost per unit remains the same regardless of the level of output.
Hence, the right answer is option B.