Final answer:
The firm has reached its optimum scale of production when the LRAC curve is at its minimum. A flat LRAC indicates constant returns to scale, allowing firms of various sizes to compete.
Step-by-step explanation:
When the LRAC curve reaches its minimum, the firm has reached its optimum scale of production. If the curve is flat over some range of output, we say the firm is exhibiting constant returns to scale. Specifically, firms can produce a range of outputs at the lowest average cost.
The long-run average cost curve is crucial for understanding the market structure and the size of firms within an industry. A curve with a clear minimum indicates that a single output level is most efficient, often leading to firms of similar sizes. However, a flat-bottomed LRAC curve permits a range of different outputs to be produced at the same cost, suggesting that firms of various sizes can compete effectively in the market.