What’s minimum efficient scale? What is the purpose of it?

A

Minimum Efficient Scale, or MES, is “the quantity at which a firm’s long run average total cost curve stops falling.” In other words, an efficient scale of production is part of the output scale, specifically the point at which a particular business reaches productive efficiency.

Explanation:

Economic competition is one of the main concerns for today’s entrepreneurs and employers. A large number of firms and small businesses are opened on a daily basis. However, some at almost the same rate due to severe market pressure.

In order to avoid the risks of business failure, a company must examine the overall level of competition in a particular area as well as analyze the possibilities for market expansion. One of the most valuable economic tools in terms of risk and development estimation is the Minimum Efficient Scale, or MES.

MES defines the average outputs that characterize the stability of minimum costs and resources expended in the context of the production of deliverables. To a great extent, the Minimum Efficient Scale is related to the actual costs and resources required for a particular industry.

Consequently, the level of competition in the market is directly proportional to production expenses. Industries with low production costs and fewer resources required for manufacturing have more potential to create new representatives in the market. On the contrary, spheres with high indicators of Minimum Efficient Scale that do not have a high level of competition, such as oil, gas, or water industries, are almost impossible to influence.

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