Newbie question: Why is it that the more precise an ad’s location targeting is, the more expensive it becomes?

I tested ads for a client who operates only within a 50 km radius, and it was insanely expensive. On top of that, I didn’t get a single lead.

Yes, skill issue, but I’m wondering if there’s a way to keep costs down when using ultra-precise location targeting, because otherwise I don’t really see the point.