Final answer:
The question relates to economies of scale, where the higher level of sales greatly reduces the per-unit cost of a product due to the spreading of fixed costs over more units, leading to a decreased fixed cost per unit and not due to decreased fixed costs as a whole.
Step-by-step explanation:
The question addresses how the higher level of sales can greatly reduce the per-unit cost of a product, particularly in the context of information products. The key concept here is economies of scale, which occur when the long-run average cost of producing output decreases as total output increases. When a company sells more units, its fixed costs, such as rent and salaries, are spread out over a larger number of units, reducing the cost per unit. This does not mean that fixed costs decrease, but rather that the fixed cost per unit decreases. It is important to clarify that this is not due to decreased fixed costs, increased variable costs, diseconomies of scale, or higher production overhead. Instead, economies of scale enable a firm to produce more efficiently, targeting the optimal scale of production where the average cost is at its lowest point. As emphasized, larger firms, like warehouse stores, benefit from this principle, being able to offer lower prices than smaller competitors due to significantly lower per-unit costs at higher volumes of output.