Business, 24.01.2020 21:31 msdsh03

The smallest size plant size at which the long run average cost curve is at its minimum is called the a. minimum efficient scale. b. shut down point. c. envelope. d. profit maximizing scale of production.

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Answer from: ryliekarenbowers

A. minimum efficient scale

Explanation:

The minimum efficient scale is the lowest production amount a company can achieve, but it still takes full advantage of scale economies in terms of consumables and costs. The minimum efficiency scale in classical economics is defined as the lowest production point where the long-term total average costs (LRATC) are lowest. The minimum effective scale based on finding the optimal balance between consumer demand, production volume, and costs associated with production and product presentation, with competitive prices. indicates a point that caused it to be able to offer a product. The minimum effective scale can be expressed as a series of production values; however, its relationship to the total market size or demand determines how many competitors can work effectively in the market. Current consumer demand can help determine the level of production that can occur in the industry without taking out too much inventory. When examining product-related costs, an enterprise should consider not only production costs but also storage costs for any unsold inventory. Shipping fees, marketing costs, and public relations activities can also be included.

Costs incurred when determining the lowest efficient scale may vary depending on changing market conditions. For example, rising material or shipping costs can change the ideal spot. Changes in demand can also affect the calculation, as well as changes in applicable laws or regulations that affect production methods. Where employees' wages suddenly change, as with the establishment of a new minimum wage, associated labor costs must be taken into account to correct the increase.

The constant change of the relevant variables requires frequent recalculation of the minimum productive scale and can cause some production changes to keep an enterprise both profitable and competitive in the market. Business can fail if production costs prevent a product from being offered at competitive prices.

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