Hello All, I was hoping one of you could explain the following concept concerning the MES: It states that: If the minimum efficient scale is small relative to the overall size of the market (demand for the good), there will be a large number of firms. The firms in this market will be likely to behave in a perfectly competitive manner due to the large number of competitors. My understanding of the MES is that it is not possible to produce a good at any lower cost than the MES level, but how will this relate in determining the market structure? I’m tring to find an explanation with figures in it? Thanks
Not to worry, i found the following on investopedia: If the minimum efficient scale is relatively small compared to total market size (a good example would be computer software), many companies can exist in the same space. In other industries - such as telecom and basic materials - the minimum efficiency scale is quite large due to the high ratio of fixed costs to variable costs. In these types of industries, only a few major players tend to dominate the space. Cheers