"they're selling at a loss but making it up on volume"

How's that possible?

It's a joke

Economies of scale[1].

A simple example is, imagine making pizzas for your neighbors, and it takes you 15 minutes to make dough for 1 pizza, and at a $10/hr wage, that's $2.50 per pizza in dough labor costs. Now, imagine it only takes you 20 minutes to make dough for 5 pizzas. That's $3.33 in dough labor costs for 5 pizzas, or $.66/ea.

1. https://en.m.wikipedia.org/wiki/Economies_of_scale

You should read catch-22.

What in the world does catch-22 have to do with economies of scale, and why the down-vote (if that was you)?

Milo Minderbinder immediately came to mind for me too.

https://en.wikipedia.org/wiki/Milo_Minderbinder

It's a quote from the book and no it wasn't me.

Right, but that only means you generate less revenue while selling at a loss.

No. It means that at the 5 pizza scale, if you're selling your pizzas at $5 (assuming $3.00 ingredient and labor costs other than dough), rather than a $.50 loss per pizza ($5.00 - $3.00 - $2.50), you're now making a $1.34 profit per pizza ($5.00 - $3.00 - $.66).

But the stated premise is that they're selling at a loss. Economies of scale don't permit you to generate profit while selling at a loss.

The point of an economy of scale is that, once reached, it can lower costs (think quantity discounts), which means what was a loss at lower quantities can become a profitable business.