The long-run average cost curve for airplane manufacturing falls up to 8,000 planes a year, where average cost reaches p₀, is flat from 8,000 to 20,000 planes, and rises beyond 20,000. Market demand crosses that curve at only 5,000 planes a year, at a price p₁ above p₀. There the market has room for one producer.
A second firm entering at a smaller scale, say 4,000 planes, would have higher average costs than the firm already there and could not compete. Entering at 8,000 planes would give it lower average costs, but it could not sell 8,000 planes: there is not enough demand. That is a natural monopoly, and it arises whenever the quantity demanded falls short of the output at the bottom of the long-run average cost curve. The slider grows or shrinks the market, and the side panel says whether one firm or more can survive.