What is efficient scale?
Understand the Problem
The question is asking for the definition or explanation of 'efficient scale', which usually refers to the level of production at which a firm's average costs are minimized.
Answer
The smallest quantity of output at which long-run average cost is minimized.
The final answer is the minimum efficient scale (MES) is the smallest quantity of output at which long-run average cost is minimized.
Answer for screen readers
The final answer is the minimum efficient scale (MES) is the smallest quantity of output at which long-run average cost is minimized.
More Information
The minimum efficient scale is critical for businesses to understand, as operating below this scale can lead to higher per-unit costs, while operating above it may lead to inefficiencies.
Tips
A common mistake is confusing the minimum efficient scale with economies of scale, which generally refers to cost advantages gained by an increased level of production.
Sources
- Minimum Efficient Scale (MES): Definition With Graph - Investopedia - investopedia.com
- Minimum Efficient Scale (MES) - Overview, How To Find - corporatefinanceinstitute.com
- Minimum Efficient Scale Explained - Management Consulted - managementconsulted.com
