A Level Economics AQA Practice Exam

What occurs as a firm reaches the point of minimum efficient scale?

1. All economies of scale are eliminated

2. The firm maximizes its technical efficiency

3. Average costs begin to rise significantly

4. Input costs become irrelevant

The correct answer is: The firm maximizes its technical efficiency

As a firm reaches the point of minimum efficient scale (MES), it significantly enhances its technical efficiency. This point represents the lowest level of output at which the firm can produce its goods at a minimal average cost, achieving optimal scaling of production. At this level, the firm benefits from the most effective allocation and utilization of resources, allowing it to spread fixed costs over a larger number of goods produced. While economies of scale may not be fully eliminated at this point, the firm is at a stage where it has maximized operational efficiency before potential diseconomies of scale begin to influence production costs negatively. This means that the costs are minimized at the chosen scale of production as the firm balances its input utilization effectively, ensuring that further increases in output could lead to inefficiencies. Thus, reaching the MES is crucial for a firm seeking to establish competitive pricing and profitability while ensuring optimal resource use.