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In industrial organization, the minimum efficient scale (MES) or efficient scale of production is the lowest point where the plant (or firm) can produce such that its long run average costs are minimized.
Relationship to average cost and marginal cost[edit]
The minimum efficient scale can be computed by equating average cost (AC) with marginal cost (MC). The rationale behind this is that if a firm were to produce a small number of units, its average cost per unit would be high because the bulk of the costs would come from fixed costs. But if the firm produces more units, the average cost incurred per unit will be lower as the fixed costs are spread over a larger number of units; the marginal cost is below the average cost, pulling the latter down. The efficient scale of production is then reached when the average cost is at its minimum and therefore the same as the marginal cost.
Relationship to market structure[edit]
The concept of minimum efficient scale is useful in determining the likely market structure of a 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.[1]
See also[edit]
References[edit]
- ^Carlton D. and Perloff M.: 'Modern Industrial Organization' Fourth Edition, 2005
Carlton D. And Perloff Modern Industrial Organization Fourth Edition 2005 Pdf
Carlton D. And Perloff Modern Industrial Organization Fourth Edition 2005 Free
Carlton D. And Perloff Modern Industrial Organization Fourth Edition 2005 Edition
spine split in several spots. Bumped this up to 4 stars because the
content itself really is quite good. Could use some more worked out
problems and this text was supplemented with a game theory book. If
you are in a Ph.D. program, you may want to take a separate game
theory class before taking IO.
There are plenty of $30 programming books of similar size with much
better bindings, so maybe the publisher is trying to hurt the used
book market by making the binding so bad this book can only be used
for one semester.]
This is a pedantic review about something other than the content, but
I've rarely been so annoyed by the typesetting of a $200 book.
The publisher should be ashamed. The book was obviously layed out for
one of those over-sized glossy color books, but someone change his
mind at the last minute and they did a cost reduction by releasing
this as an 800+ page black and white paperback. They did this without
going back and adjusting the layout or even changing the macros used
for boldface and such.
This didn't work out well. They shrunk the pages so everything seems
to be in 9-point type. Subheadings and emphasis were originally all
in some other color, but now they come out as light-grey so are very
difficult to read. Exterior margins are still a full two inches of
wasted space, but the interior margins are sub-half-inch on a 800+
page non-lay flat paperback. If you actually need to read the whole
thing the spine will be broken and pages will fall out before you are
done.