The minimum efficient scale is important in determining:
A) the optimum level of input usage by a firm.
B) the allocation of output between the multiple plants owned by a firm.
C) the output elasticity of firms in the market.
D) whether the firm's production function exhibits increasing, constant, or decreasing returns to scale.
E) how many firms can profitably operate in a particular market.

Question

Quizplus · Accepted Answer

The minimum efficient scale is the lowest level of production at which a firm can produce its product at the lowest cost possible. It is therefore an important determinant of the number of firms that can profitably operate within a particular market. If the minimum efficient scale is such that only a few firms can operate profitably, the market may be characterized by an oligopoly or monopoly, whereas if the minimum efficient scale is relatively small, many firms may be able to operate in the market. Therefore, option E is the best choice.

The Minimum Efficient Scale Is Important in Determining