Hi Annette!
This question has puzzled me as well, and I'm pretty new so I just spent some time trying to figure it out. From what I've found, Shopify seems to offer a few solutions.
http://docs.shopify.com/manual/settings/shipping/shipping-rates#quanity-based-shipping-rates
I would probably use the third option with flat-rate on the total myself, with the option of giving "free shipping" on higher-priced items where your margin is higher and you can take the hit with shipping costs (my preference though!). Although, I actually like the idea of giving a shipping discount when buying larger quantities, or offering a $5 coupon at checkout to try and alleviate the shipping a bit. It also seems to entice customers a little more.
Hope this is helpful, and that you'll be able to find out what works best for you and your store!