Minimum Efficient Scale Analysis

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locally produced raw material prices in Japanese markets. Hence, the effect of global change in the US dollar value is noticeable in micro economy of the country. Here it is clear how change in macro economy has connection to micro economy. In short macro and micro economy are so interrelated that sometimes most government have difficulty to formulate a particular economic policy solely relaying one of the two (macro or macro economy) branches of economy. Minimum Efficient Scale Minimum Efficient Scale is the lowest amount of production that a company can reach while taking full advantages of economic of scale with relation of supplies and costs. It correlates with the smallest production point at which the long-run total average costs are…show more content…
It is a range of production levels where standard cost is minimized and companies attain regular returns to scale. It changes from industry to industry relating to the type of cost structure in a specific branch of the market. If the Minimum Efficient Scale is small compared to total market size, a lot of firms can exist in the same place. In contrast, if the minimum efficient scale is quite enormous caused by high fixed costs, only few basic players can be predominant. High quality and low quality companies have unexpected cost curves and they do not have the same minimum efficient scale. This causes to the alteration of outcomes which the low quality firms can be working at Minimum Efficient Scale which is appropriate to their quality level. In contrast, high quality companies still assumed to achieve Minimum Efficient Scale even though they are much bigger than low quality companies and operate in the same entire…show more content…
It requires time for the firm to expand its outputs by (building a new factory, install new equipments or machines to use different techniques of production). Companies have to come up with several decisions in the long-run such as premium pricing. These decisions influence to the cost of production. Therefore, pricing plays an important role in the long-run. Premium Pricing is the way that the price of product is higher than similar products. It is also called ‘’skim pricing’’. Premium pricing is the long-term strategy that companies not only pay attention to their prices but also they emphasize on the quality of products or services. Their main goal is to be on the top of the market at the same time to maximize their profits where customers are also ready to pay

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