or 25,000 dishwashers per year, the average costs of production at such plants would be well above $500, and

the firms would not be able to compete.

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7.5 • Costs in the Long Run 179

FIGURE 7.11 The LRAC Curve and the Size and Number of Firms (a) Low-cost firms will produce at output level R.

When the LRAC curve has a clear minimum point, then any firm producing a different quantity will have higher costs.

In this case, a firm producing at a quantity of 10,000 will produce at a lower average cost than a firm producing, say,

5,000 or 20,000 units. (b) Low-cost firms will produce between output levels R and S. When the LRAC curve has a

flat bottom, then firms producing at any quantity along this flat bottom can compete. In this case, any firm

producing a quantity between 5,000 and 20,000 can compete effectively, although firms producing less than 5,000

or more than 20,000 would face higher average costs and be unable to compete.

CLEAR IT UP
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