Question

If long-run average costs decrease at each possible quantity, does the minimum efficient scale necessarily either increase or decrease? Explain your reasoning.

Short answer

Economies of scale are caused by the difficulty to oversee larger organizations as well as higher operating costs. Beyond the point of the minimum efficient scale, an organization cannot experience economies of scale.

Step-by-step solution

Introduction.

The equilibrium point at which a corporation can produce items at a competitive price is known as the minimum efficient scale (MES).It reduces the long-term average total cost (LRATC). On a company's long-run cost curve, the MES is the point at which scale economies have been spent and constant returns have commenced.

Reason for long-run average costs decrease at each possible quantity.

If long-run average costs decrease at each possible quantity, does the minimum efficient scale increases. Because, Diseconomies of scale are caused by the difficulty to oversee larger enterprises and the increasing operating costs. Beyond the point of minimum efficient scale, an organization cannot experience economies of scale.