Question
The minimum efficiert scale is
A. the smallest output leval where the firm finaliy reaches prosuctive efficiency.
B. the plant size that yieids the most proft.
C. the level of output where diminishing raturns have not set in yet.
D. Thalest level of operation where long nun average costs are lowest.
A. the smallest output leval where the firm finaliy reaches prosuctive efficiency.
B. the plant size that yieids the most proft.
C. the level of output where diminishing raturns have not set in yet.
D. Thalest level of operation where long nun average costs are lowest.
Ask by Evans Burton. in the United States
Mar 23,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
The minimum efficient scale is the smallest level of operation where long-run average costs are lowest.
Solution
The minimum efficient scale is defined as the smallest level of production at which the long-run average cost (LRAC) is minimized. Let’s go through the options:
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Option A: “the smallest output level where the firm finally reaches productive efficiency.”
- Productive efficiency implies that goods are produced at the minimum possible cost, but the concept of minimum efficient scale specifically refers to the point on the LRAC curve that minimizes cost.
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Option B: “the plant size that yields the most profit.”
- Profit maximization is not necessarily achieved at the minimum efficient scale. It depends on market conditions, competition, and pricing, not just cost minimization.
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Option C: “the level of output where diminishing returns have not set in yet.”
- This talks about the short-run production function, but the minimum efficient scale is a long-run concept and deals with average costs over all inputs.
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Option D: “the smallest level of operation where long run average costs are lowest.”
- This is the correct definition. It describes the point on the LRAC curve where the firm achieves the lowest average cost possible in the long run, right before increasing outputs does not further lower the average costs.
Thus, the correct answer is:
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution Bonus Knowledge
The minimum efficient scale refers to the lowest level of production at which a firm can achieve the lowest long-run average costs, utilizing all its resources efficiently. This scale is crucial because it helps firms identify the optimal size of their operations to maximize profitability while keeping costs in check.
In real-world terms, achieving the minimum efficient scale is often a game changer for businesses. For instance, large-scale manufacturers like automobile companies invest heavily to ensure they reach this efficiency level. When they do, they can produce vehicles at a lower cost per unit, which helps them stay competitive in the market while potentially increasing their profit margins.
