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Two companies both produce the same product, the marginal cost of which is $2.00. The marginal revenue curve for the combined output of both firms is: MR = 10 - 2Q where MR is marginal revenue (in dollars), and Q is the number of units of output sold by both firms together. If the two firms decide to collude and share the monopoly profits: (a) What will be the combined output of the two firms?
(b) What will be the profit earned by each firm?
(c) What would have been the price and quantity in this market if the firms competed?
(d) Calculated the consumer surplus and the producer surplus when (i) the firms collude, and (ii) the firms compete.
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