Key Diagrams - Minimum Efficient Scale

This short revision video considers the concept of the minimum efficient scale.

The MES is the scale of production where internal economies of scale have been fully exploited. Corresponds to the lowest point on the long run average cost curve (LRAC). It will vary from industry to industry depending on the nature of supply costs for different products.

A high minimum efficient scale relative to the size of market demand will tend to lead to a more highly concentrated market such as monopoly or oligopoly, whereas a low MES will encourage a more competitive, contestable market.