solution

The can industry is composed of two fi rms. Suppose that the demand curve

for cans is P = 100 – Q

where P is the price (in cents) of a can and Q is the quantity demanded (in

millions per month) of cans. Suppose the total cost function of each firm is

TC = 2 + 15q where TC is total cost (in tens of thousands of dollars) per month and q is the

quantity produced (in millions) per month by the firm.

a. What are the price and output if managers set price equal to marginal

cost? b. What are the profit-maximizing price and output if the managers collude

and act like a monopolist? c. Do the managers make a higher combined profit if they collude than

if they set price equal to marginal cost? If so, how much higher is their

combined profit?