In: Economics
Returns to scale is the bottom of the long run average cost curve. This is the cost where the firm will have largest economies of scale at the minimum cost in long ru.
Returns to scale quantity = 1 million = 1000 thousand
Market Demand = 500 thousand
Since the market demand < returns to scale quantity, in this situation market will end up with a single firm producing 500 thousand quantity i.e. it would be a monopoly. If any competitor tries to compete in this monopoly market, he will produce less than 500 thousand units and will have higher average cost. So it will not be able to survive in lon run without losing money.
Hence, monopoly with only 1 firm in the market.
Returns to scale quantity = 1 million
Market Demand = 3 million
Since the market demand > returns to scale quantity, in this situation market is set for competition between many firms and each firm would produce 1 million units of output. hence number of firms = market demand / returns to scale quantity = 3 / 1 = 3 firms.
Hence, 3 firms ae likely to be in the market.