Calculate how large A would have to be so that in the new LRCE, the number of firms is twice what it was in the initial equilibrium.

Solution Preview

1. Calculate the optimal output produced by each firm at the long run competitive equilibrium (LRCE).

At LRCE, long run marginal Cost is equal to long run average cost.

Given, LTC= 1/3 Q^3 -6Q^(2 )+40Q

Long run marginal cost (LRMC) is given by
LRMC=d(LTC)/dQ=Q^2-12Q+40

Long run average cost (LRAC) is given by
LRAC=LTC/Q=1/3 ...

Solution Summary

Solution describes the steps to calculate optimal output and market price. It also calculates number of firms present in the market in the given scenario.

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