What is the minimum effective scale?

Also known as MES, the minimum effective scale is the smallest production production that the company can maintain and still maintain long -term average total costs to an acceptable extent. Identifying the scope of this scale is useful in the help of the company in determining how it should respond to the demand for produced products. Ideally, the company is able to consistently satisfy this demand and at the same time to cause costs that companies still allow to produce fair amounts of profits.

The extent of the minimum efficient scale is often dictated by the market size where the company is looking for customers and how many other companies produce similar goods and compete for the same customers. On the market, the overall demand for the type of products produced by all companies that compete on the market will provide a certain feeling of how many units can produce the company without creating a large inventory that is extremely slow. Internally, the company Looks for everyDou the price associated with the production and storage of goods until it is sold. Marketing, public relations and transport costs are also taken into account.

When calculating the costs associated with the task of satisfying consumer demand, the company will consider both solid and variable costs. Depending on the industry involved, the minimum effective scale may be somewhat high if there are a large number of fixed costs compared to the variable costs associated with the operation. If this is a situation, there is a great chance that a relatively small number of companies of consumer competitions and opportunities to gain a larger market share are somewhat limited. If the scale is somewhat low, there is a great chance that there are a number of companies that compete for consumers, and a lot of opportunities for competition.

minimal efficient scale is to identify the ideal balance between demand, production and nouProves associated with the production and supply of products. If production costs are so high that it is impossible to sell products at a competitive price and still earn profit, the company will eventually fail. If the demand for products decreases significantly, the scale will also move to reflect this chance in demand, and may lead to the ratio between costs and profits. Since many industries are experiencing changes in demand from time to time and production costs may increase or decrease, identifying the current minimum effective scale is a permanent task.