Question: The can industry is composed of two firms. 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 that the total cost function of each firm is

TC = 2 + 15q

where is the total cost (in tens of thousands of dollars) per month and q is the quantity produced (in millions) per month by the firm.

1. What are the price and output if the firms set price equal to marginal cost?
2. What are the profit-maximizing price and output if the firms collude and act like a monopolist?
3. Do the firms 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?

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