Question
The concept of Minimum Efficient Scale (MES) refers to the smallest output level at which a business can achieve economies of scale. In industries with fixed costs, MES is crucial as it determines the volume required to be cost-competitive. Companies operating below the MES will struggle to compete with larger rivals due to higher per-unit costs. Once a company achieves MES, further growth does not significantly reduce costs, but it does provide a competitive edge in terms of pricing power and market share.
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In some industries with fixed costs, companies benefit from economies of scale. In such an industry, you must know your Minimum Efficient Scale (MES), the volume required to be cost-competitive. Below MES, you will not be able to compete with larger rivals. Once you achieve MES, continued growth no longer results in a more significant cost advantage.
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