Minimum Efficient Scale

Statement

The minimum efficient scale (MES) is the output level at which long-run average cost first stops falling — the lowest point on the long-run average cost curve.

Notes

At the MES a firm has reaped all its internal economies of scale and minimised its unit cost of production; producing there is the condition for productive efficiency. Below the MES the firm is still travelling down the falling portion of the long-run average cost curve; beyond it, internal diseconomies of scale set in and unit cost rises. The size of the MES relative to total market demand is itself a barrier to entry: where the MES is large, a new entrant must capture a substantial share of the market merely to compete on cost.