What economic concept states that average production costs decrease as a business grows?

The concept that describes average production costs decreasing as a business grows is known as the Law of Economies of Scale. This principle asserts that as a company increases its production, the cost per unit of production typically declines. This occurs due to several factors, such as the ability to purchase inputs in bulk at a lower price, the spreading of fixed costs over a larger number of units, and improved operational efficiencies that come with increased production levels.

The Law of Demand pertains to the relationship between the price of a good and the quantity demanded, which does not directly address production costs. The Law of Supply focuses on the relationship between the price of a good and the quantity supplied, which also does not connect to the concept of production costs changing with scale. The Marginal Cost Principle deals with the costs of producing one additional unit, which is a different area of economic analysis that does not specifically address how costs change on average across a range of production levels.

Therefore, the concept of economies of scale is the correct answer, as it directly explains the phenomenon of decreasing average production costs with increased business growth.