Minimum efficient scale

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 with production remaining effective.

[2] Economies of scale refers to the cost advantage arise from increasing amount of production.

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.

For instance, the firm may obtain further economies of scale from skill improvement by training the employees, decentralization in management.