I can provide a bit of insight, here:
[TL;DR] for the short version.
[Waffle: some of this could be wrong!]
Having previously worked in a mailing room, its actually cheaper than you think. A bog standard A4 80gsm box of paper is about £15. Preprinted costs a bit more. Colour toner is around £150 a tube. An addressed envelope (C5+) (A4 single fold) costs about 10p. 3rd party double sided managed printers and paper folders are where the real costs are, depending on what you want to send. If you're only sending a double sided single sheet, cheaper C5 narrower envelopes (227mm) can be used. 2 sheets of A4 80gsm paper weighs 10g which was under the 60g so that went Royal Mail Cleanmail 1st/2nd class.
At the time they were using the narrow envelopes also (80gsm) which weighed 5g. the bigger envelopes were around 7g (237mm) since multiple sheets weigh more, the costs increase. I'm not sure about Royal Mail's pricing right now, but there is a bulk discount on 1st/2nd class. 3rd party mailers (Whistl etc) can cost less, but they outsource delivery to Royal Mail (why you get "Delivered by Royal Mail" on some envelopes) which takes longer, but can work out cheaper, the problem being undelivered mail takes longer to be returned (could be considered RM 3rd class). Changes in RM's envelope design was also a pain (as were misprints, an address on the back of the envelope has to be provided, by law), leading to the destruction of perfectly usable envelopes (the older versions).
VM uses standard A4 and doesn't really send much out, as the legal stuff and PDF's are on here. Makes it easier to handle the paper, which is what it's all about. Thinner paper was available at the time, (65gsm but that would need to have been imported from India) and wouldn't have been cost effective.
[TL;DR] it's a huge mailmerge; then dump the printed letters into the folding machine. Little squares line it up, along with how many pages in the letter. Press the start button, away it goes. Costs vary. We pay the £1.75 for paper bills.
[edit] I forgot the 'leccy bill as well.