On a typical long-run average cost curve, the minimum efficient scale (MES) is reached at the output level where the curve first becomes flat. If the curve is flat at an output of 100 units, at what output level does the minimum efficient scale occur?

• A. 100 units
• B. 200 units
• C. 10 units
• D. 50 units

Answer: (A)

Verified step by step guidance

1. Understand that the Minimum Efficient Scale (MES) is defined as the lowest level of output at which the long-run average cost (LRAC) curve becomes flat, indicating that economies of scale have been fully exploited.
2. Identify from the problem that the LRAC curve first becomes flat at an output level of 100 units, meaning that before 100 units, the firm experiences decreasing average costs, and after 100 units, the average cost remains constant.
3. Recall that the MES corresponds exactly to this output level where the LRAC curve stops declining and becomes flat, as this is the point where the firm achieves the most efficient scale of production.
4. Therefore, the MES is at the output level where the LRAC curve first becomes flat, which is given as 100 units in the problem.
5. Conclude that the minimum efficient scale occurs at 100 units of output.