What is a minimum efficient scale?
A minimum efficient scale is the lowest level of output a company can achieve while taking advantage of economies of scale. Essentially, it's the point at which a company is running productively on the lowest possible cost.
Where have you heard about minimum efficient scales?
A minimum efficient scale is a term used in classical economics. Supermarkets run on minimum efficient scales. Because they have such a large output, they're able to reduce how much they spend on those products as they're buying in batches. This means that they can alter their prices and compete against other supermarkets without sustaining significant damage to their finances.
What you need to know about minimum efficient scales.
The term 'minimum efficient scale' refers to the size of a company when it reaches a point at which it is running the lowest possible long-run average costs - in other words, when it's managed to reduce spending on production, wages and other outputs while still maintaining a standard level of production.
Minimum efficient scales are very sensitive to change. They can be affected by factors like rising materials costs, rises in the minimum wage, and customer demand.
Find out more about minimum efficient scales.
To understand minimum efficient scales, you need to know about economies of scale. Read our guide here.