In the figure, the relevant range of output extends to point D,

since this reflects total industry output, total sales.

At the same time, between points C and D, there are constant returns to scale,

whereas between point A and C, there are decrease in returns to scale.

This clearly implies that the minimum efficient scale for

a firm in this industry is a plant size of AC which, in this example,

equals one third of the total output AD.

And by the way, you may recall from the lesson four that the minimum efficient

skill is defined as the smallest level of output at which a firm

can minimize long-run average cost.

In the case of natural monopolies like the railroads and utilities,

small firms can not realize the MES, the minimum efficient scale.

So there is only one seller but you should see here from the figure

that a large minimum efficient scale can also give rise to oligopoly.