If economies of scale are significant, the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

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Economies of scale refer to the cost advantages that a firm can achieve by increasing its production levels. As production increases, firms may be able to spread fixed costs over a larger output, negotiate better deals with suppliers, or benefit from specialized machinery that becomes more efficient with larger runs. As a result, the per-unit cost of production decreases. This means that the typical firm will continue to experience lower average costs as it produces more output, and it may not reach the minimum point on its long-run average cost curve until it has produced a sizeable fraction of the industry's total output.

If Economies of Scale Are Significant, the Typical Firm Will