Relationship To Average Cost and Marginal Cost
Another way the efficient scale can be computed is by equating Average Cost (AC) with the Marginal Cost (MC). The rationale behind this is that when a firm produces a smaller number of units, its Average Cost per unit is high because a bulk of the costs come from Fixed Costs. As a firm produces more units, the Average Cost incurred per unit will tend to "average out" and move towards the cost it takes to produce each additional unit (Marginal Cost). The efficient scale of production is then reached when the Average Cost is the same as its Marginal Cost.
Read more about this topic: Minimum Efficient Scale
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