No matter what they will experience economies of scale on MANY services. You are right, not on all. Let's take the example of the police department:
Fixed Cost = Building, garage, dispatch, etc.
Variable Cost = size of police force
So this is a rather simplistic view, but when population increases they may have to higher more policemen (variable cost increases in total numbers, but not per person), but they don't need a new department, a 2nd police chief, etc. (fixed cost is now split among a larger population). Thus the per person cost of policing the city has decreased.