The minimum efficient scale refers to the level of production at which a firm can produce goods or services at the lowest average cost. It represents the optimal size of operation for a firm in terms of efficiency.
Related terms
Diseconomies of Scale: When a firm expands beyond its minimum efficient scale and experiences an increase in average costs due to inefficiencies.
Economies of Scale: The cost advantages that firms gain when they increase their level of production.
Long-run Average Cost Curve (LRAC): A graphical representation that shows how average costs change as plant capacity increases or decreases.