Minimum Efficient Scale (MES)

Minimum Efficient Scale (MES) refers to the lowest level of output at which a firm can achieve the lowest long-run average costs. At this scale, the firm operates efficiently, balancing production volume with operational costs.

For instance, if a car manufacturer can produce 100,000 vehicles per year at a lower average cost than producing 50,000 vehicles, the MES would be 100,000 units. Producing fewer vehicles would lead to higher costs per vehicle due to underutilization of resources.

In cases such as the airline industry, large fleets allow airlines to spread fixed costs over many flights, achieving a lower average cost per passenger. Conversely, a small regional airline may face higher average costs if it operates at a scale below its MES.