Meaning Minimum Efficient Scale

It provides insight about competitiveness of an industry.

Meaning minimum efficient scale. No further significant economies of scale can be achieved beyond this scale. Minimum efficient scale the point on the firm s long run average cost curve at which economies of scale are exhausted and constant returns to scale begin. An industry with high mes typically has few large firms.

Minimum efficient scale description the full technique overview will be available soon. The minimum efficient scale can also be a range of output for which the company receives constant returns to scale at the lowest unit cost possible. Minimum efficient scale definition.

In the theory of costs the long run average cost is conventionally depicted as being u shaped with economies of scale serving to reduce average cost as output increases to begin with but then diseconomies of scale set in and average cost. Minimum efficient scale mes is the smallest output level at which lrac is at its minimum. A minimum efficient scale is the smallest production output that a business can maintain and still keep the long run total cost within an acceptable range.

The minimum efficient scale can be computed by equating average cost ac with marginal cost mc i e. Minimum efficient scale corresponds to the lowest point on the long run average cost curve and is also known as an output range over which a business achieves productive efficiency. Prior to this point the increase in production will be at a reduced average cost economies of scale and after that point the average cost increases with increasing output diseconomies of scale.

The rationale behind this is that if a firm were to produce a small number of units its average cost per unit would be high because the bulk of the costs would come from fixed costs. Minimum efficient scale mes is the minimum quantity of output at which internal economies of scale are fully exploited mceachern 2010. Long run average cost lrac curve is a graph that plots average cost of a firm in the long run when all inputs can be changed.

The scope of the minimum efficient scale is often dictated by the size of the market where the company seeks customers and how many other companies produce similar goods and compete for. Minimum efficient scale affects the number of firms that can operate in a market and the structure of markets. But if the firm produces more units the average.