Final answer:
Scalability is the measure of how well a company can increase its production and decrease average cost as it grows. It is closely related to economies of scale, a situation where the cost per unit falls as production volumes increase.
Step-by-step explanation:
The measure of the contribution margin required to deliver a good or service as the business grows and volumes increase is referred to as scalability. Scalability is important because it relates to the concept of economies of scale, where the average cost of production goes down as the volume of output increases.
When analyzing a firm's potential for scalability, it's important to consider not only the average total cost but also barriers to entry, brand recognition, and the presence of economies of scale which all play a role in establishing the optimal scale of production.