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In a small town, the managers of the three janitorial service firms have tacitly agreed to...

In a small town, the managers of the three janitorial service firms have tacitly agreed to charge $150 per week for cleaning a standard-sized office. Each firm services 200 offices. The marginal cost and average total cost of cleaning an office are both $130. (a) What is each firm’s economic profit? (b) Suppose that a new office opens. Its owners tell the managers of one of the janitorial service firms that they will hire the janitorial service—but only if the price is $140 per week. Is this new contract profitable for this firm? If the janitorial service managers sign the contract, how would it affect the tacit collusion among the firms?

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