Reference no: EM131405499
Minimum Efficient Scale (MES):
In the long run, given sufficient demand for their output, managers can reduce their cost of production per unit of output and increase profits by expanding the size of any given plant facility (e.g., factory, mill, shop, store, office building) to its minimum efficient scale, at which average total cost of production (LAC) is minimized. Firms achieve minimum efficient scale of their operating facilities at different levels of output in different industries; therefore they produce using different plant sizes in different industries. In industries where there is a large range of output over which firms can achieve constant returns to scale, firms with relatively small plants can compete on a cost-basis against firms that use much bigger plant facilities.
Minimum Efficient Scale (MES):
Do: In the long run, given sufficient market demand for your product or products, expand each of your operating facility's production capacity at least to the minimum efficient scale of output.
Don't: Don't use more than one plant facility to produce a level of output that could be produced at a lower average cost per unit by using only one plant facility.
Question on Minimum Efficient Scale (MES):
4.4.1 Use returns to scale principles to explain why firms' managers usually expand production, beyond some level of output at any plant facility, by building new plant facilities.
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Problem regarding the minimum efficient scale
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