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The yield of a chip manufacturing process refers to how much salable product is able to be produced. This can be an absolute number (chips per day for example) or a factor that refers to the percentage of total chips manufactured that passed inspection and were able to be sold. Of course, the higher the yield, the more chips that can be produced for (basically) the same cost, which allows costs and hence prices to decrease.
Chip makers are able to lower their costs over time as they become more proficient at manufacturing a given technology and are able to increase their yields greatly. In manufacturing parlance, this is referred to as "moving down the learning curve". Every time a new processor is introduced, there is a new learning curve, which contributes to the initial high cost of new technology (that and heavy demand from power users who want the latest and greatest).
There is a large amount of overhead associated with making chips. The buildings, people and equipment cost literally billions of dollars and are essentially fixed costs; they are paid for regardless of how many chips are turned out successfully. Thus it is critical for the manufacturer to be able to keep yields high in order to be profitable. Yields are easier to keep high when using proven technology, and harder with newer technology (at first anyway).
Also, larger die sizes tend to decrease yield: let's suppose you have 4 defects in a square inch of material. If each chip takes 0.25 square inches, chances are good that 3 will be bad out of 4, resulting in a yield of only 25%. If each chip takes 0.1 square inches, you will most likely lose no more than 4 chips, and your yield will be 60%. This is an exaggerated example of course, but it shows yet another reason why companies continue to move toward smaller and smaller circuit sizes. (The other main reason is heat reduction.)