The minimum efficient scale (MES) is the smallest scale of production at which a firm can achieve its lowest average total cost (ATC). It represents the point where the firm fully exploits its economies of scale, ensuring efficient production without incurring higher costs.

Firms operating below the MES experience higher average costs due to underutilization of resources.

MES varies by industry based on factors like capital intensity, technology, and the size of market demand.

MES is likely to be low relative to the size of market demand in a highly competitive industry – this means there is room for many businesses to compete against each other.

MES is likely to be high in a natural monopoly – which means that the industry will be highly concentrated.