We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Minimum Efficient Scale?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Also known as MES, a minimum efficient scale is the smallest production output that a business can maintain and still keep the long-run average total cost within an acceptable range. Identifying the range for this scale is helpful in aiding a business in determining how it should respond to the demand for the products produced. Ideally, the company is able to meet that demand consistently while incurring costs that still allow the company to produce an equitable amount of profit.

The scope of the minimum efficient scale is often dictated by the size of the market where the company seeks customers, and how many other companies produce similar goods and compete for those same customers. Within the marketplace, the overall demand for the type of products produced by all the companies competing in the market help to provide some sense of how many units a business can produce without building up a large inventory that moves at an extremely slow rate. Internally, the company looks at all costs associated with producing and storing the goods until they are sold. Often, the costs of marketing, public relations, and shipping is also taken into account.

In calculating the costs associated with the task of meeting consumer demand, the company will consider both fixed and variable costs. Depending on the industry involved, the minimum efficient scale may be somewhat high if there is a high amount of fixed costs in comparison to the variable costs connected with the operation. When this is the situation, there is a good chance that a relatively small number of companies compete for consumers, and the opportunities for acquiring larger market share are somewhat limited. If the scale is somewhat low, there is a good chance that there is a number of companies competing for consumers, and plenty of opportunity for competition.

The minimum efficient scale is all about identifying the ideal balance between demand, production, and the costs associated with production and delivery of the products. Should the costs of production be so high that it is impossible to sell the products at a competitive price and still earn a profit, the business will ultimately fail. If the demand for the products decreases significantly, the scale will also shift to reflect that chance in demand, and may result in undermining the ratio between costs and profits. Since many industries do experience shifts in demand from time to time, and the costs of production may increase or decrease, identifying the current minimum efficient scale is an ongoing task.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.