The LRAC Curve and the Size and Number of Firms

In (a) the long-run average cost curve has a clear minimum at R, an output of 10,000 dishwashers at $500 each. If the market buys one million a year at $500, it will be served by 100 plants of exactly this size: a plant making 5,000 or 20,000 would have costs well above $500 and could not compete.

In (b) the curve has a flat bottom from R to S. Any plant producing between 5,000 and 20,000 can compete at $500, so the industry can contain firms of many different sizes, while plants smaller than R or larger than S face higher costs and are driven out. The sliders move the minimum in (a) and change the width of the flat bottom in (b).