I’ve just watched Monsters Inc. for the zillionth time with my kids, but a real question just dawned on me - why did the demise of the bad guys and their evil plan mean that they couldn’t continue to scare kids any more and the factory would have to close down? All it meant was that they couldn’t use that device to basically kill the kids, but why couldn’t everything continue as it was before?
I think it was that they discovered that laughter was more powerful than scream.
Well, scaring kids the way they used to just wasn’t cutting it…the power/energy crisis and all that. So it was either shut down, do the weird machine thing (that wouldn’t have killed them though?!), or use laughter. They used laughter! 
No, they realized that laughter was more powerful only after the factory was shut down.
I think the John Goodman monster, having seen the fear of the girl, could no longer bring himself to scare children…
Are you sure they realized that laughter was more powerful only after the factory was shut down? I haven’t watched it a zillion times, but I’d swear they saw the power meter going up when the little girl laughed before the place was shut down.
The lack of fright in children meant that Monsters Inc, could not generate enough power for the city, and it was getting worse. Sully’s boss realized that unless something drastic was done, power supplies would run out fairly soon, due to lack of scared children. When Sully’s boss was arrested, it meant that the owner of the company was gone, and the company would founder without a leader.
Sully and Mike discovered that Boo’s laughs would make power when she started to giggle and the power surges powered, first their house/apt…then every dang door in the vault. (This in opposition to the fact that screams tended to cause power loss if you noticed.) Sully didn’t figure it out until the boss was arrested, and Mike made a passing comment about laughs.
Remember Waternoose at the coffee machine talking about how the Company was going into the dumper and he (Henry J. Waternoose) was really worried.?
I forget the exact words but he’s saying basically (IIRC): “We’re hanging by a thread here, Sully”.
I think when his plan is foiled, his going down is like Bill Gates being arrested if Microsoft were teetering on the edge of bankruptcy.
Or it could be a plot device to make Sully a bigger hero.
I know they realized that laughter was more powerful than scream before the factory closed down, but they only thought of implementing in on an industrial level after the news about the factory.
I’m probably reading too much into this, but it just seems the announcement of the closing of the factory was a little too sudden. If the boss had never come up with the evil plan, then the factory would have closed down as well. But since nobody knew about the plan, then everybody should have assumed it was going to imminently close down. No one quite acted that way, and the sadness everyone showed at the end was basically because the evil plan didn’t work.
I am going on a one viewing reccollection, but unless I am misstaken the guys had worked out at least the corellation between laughs and powers in the door vault. I seem to remember a scene with them trying desparatly to make Boo laugh while hanging from a door. In the end Mick socks himself in the nuts or similarly induces bodily harm, and Boobabe laughs.
They were doing it deliberatly to make her power the door.
Iteki is right. The reason the plant was going to close down was because Monsters, Inc was broke anyway, due the the scare shortage. With Waternoose’s evil plot foiled, the company would never turn a profit. In addition, Sully is now reluctant to scare children anyway. So they convert to cleaner, more efficient laugh-energy.