Three large companies and seven small companies currently manufacture a product with potential military applications. If the government regulates the industry, it will institute a single set of manufacturing specifications to which all ten companies will have to adhere. In this case, ttherefore, since none of the seven small companies can afford to convert their production lines to a new set of manufacturing specifications, only the three large companies will be able to remain in business.
The statement 'It would cost more to convert the production lines of the small companies to a new set of manufacturing specifications than it would to convert the production lines of the large companies' is an assumption on which the author's argument relies.