Question

The minimum efficient scale is

A. the plant size that yields the most profit.
B. the level of output where diminishing returns have not set in yet.
C. the smallest output level where the firm finally reaches productive efficiency.
D. the level of operation where long run average costs are lowest.

Answer 1

The option which best describes the minimum efficient scale(MES) is D) the level operations where long run average cost are lowest.

Step-by-step explanation:

The MES( which is also know as efficient scale of production ) is the lowest point on the cost curve , where a company can produce its products in such a way that its long term average cost is minimized over a period of time. This efficient scale of operation can be calculated by equating marginal cost with the average cost, as if the number of units produced by the firm is less, than the cost per unit (average) would be high because of the fixed cost but when more units are produced than this fixed cost would be spread over high number of units and the average cost per unit would decrease.