Which of the following statements is true about minimum efficient scale (MES)?

Choose 1 answer:
(A) Markets with smaller MES relative to the size of the market tend to be associated with large amounts of market power.
(B) Large MES relative to market share is associated with more market concentration.
(c) When MES is large relative to the size of the market, it is most efficient to have many firms operating in a market.
(D) Firms can experience increasing returns to scale if they increase output beyond MES.
(E) MES is the scale of production associated with the point at which increasing returns to scale occur.

Question

Which of the following statements is true about minimum efficient scale (MES)?

Choose 1 answer:
(A) Markets with smaller MES relative to the size of the market tend to be associated with large amounts of market power.
(B) Large MES relative to market share is associated with more market concentration.
(c) When MES is large relative to the size of the market, it is most efficient to have many firms operating in a market.
(D) Firms can experience increasing returns to scale if they increase output beyond MES.
(E) MES is the scale of production associated with the point at which increasing returns to scale occur.

Accepted Answer

∻Solution∻ ‖ a ⋮ Understanding MES: The minimum efficient scale (MES) is the level of production at which a firm can produce its goods at the lowest average cost, benefiting from economies of scale. ‖ ‖ b ⋮ Analyzing the Options: - Option (A) suggests that smaller MES allows for more market power, which is not necessarily true. - Option (B) implies that a large MES relative to market share leads to more market concentration, which is generally correct as it can create barriers to entry. - Option (C) is incorrect because when MES is large, it suggests that the market can support fewer firms due to high start-up costs and significant economies of scale. - Option (D) is incorrect because increasing returns to scale typically occur before reaching MES, not beyond it. - Option (E) is incorrect because MES is associated with the lowest point on the long-run average cost curve, not the point where increasing returns to scale occur. ‖ ∻Answer∻ ⚹ (B) Large MES relative to market share is associated with more market concentration. ⚹ ∻Key Concept∻ ⚹ Minimum Efficient Scale (MES) and Market Concentration ⚹ ∻Explanation∻ ⚹ MES refers to the scale at which a firm can produce at the lowest average cost. A large MES relative to the market can lead to higher market concentration because it implies that only a few firms can achieve such scale, creating barriers to entry for smaller firms. ⚹◊What impact does minimum efficient scale have on market power in relation to firm efficiency in different market structures?⍭ Generate me a similar question◊

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