Minimum efficient scale

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Minimum efficient scale (MES) or efficient scale of production is a term used in industrial organization to denote the smallest output that a plant (or firm) can produce such that its long run average costs are minimized.



Mathematically, the efficient scale can be computed by either taking the first order derivative of the Average Cost (AC) and equating it to 0. This would represent the minimum average cost that the firm is incurring per quantity produced.

Relationship to market structure

This concept is useful in determining the likely market structure of a Export marketing or market. For instance, if the minimum efficient scale is small relative to the overall size of the market (demand for the good), there will be a large number of firms. The firms in this market will be likely to behave in a perfectly competitive manner due to the large number of competitors.



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