Changes

1.  Identify an industry not mentioned in the lecture that is an oligopoly, and explain why.

1.  Identify an industry not mentioned in the lecture that is an [[oligopoly]], and explain why.

:Video game companies like Nintendo, Sony and X-box (don't know who makes X-box) is an example of an oligopoly, because there is few competitors. It takes a lot of time effort and money to make a new company with its own system and games. And most of the systems are very similar. (Seth)

:Video game companies like Nintendo, Sony and X-box (don't know who makes X-box) is an example of an oligopoly, because there is few competitors. It takes a lot of time effort and money to make a new company with its own system and games. And most of the systems are very similar. (Seth)

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:[Teacher's Note: There is a mistake in this problem.  The numbers are unrealistic and points were deducted for inadequate explanation.  We will revisit this problem in the next homework.]

:Teacher's Note: Unfortunately, there is a mistake in the ''ordering'' of the paired numbers used in this problem, which I realized only after grading the answers.  The numbers were in the wrong order because a firm's profits should increase, not decrease, when it increases output in an oligopoly.  All students correctly realized that the equilibrium must be where the profits are equal, either (50,50) or (75,75).  As mistakenly written above, we can start from (50,50) and realize that firm B can increase its profits by reducing output, which takes us to (25,100).  But then the other firm can increase its profits by reducing output, which takes us to equilibrium at (75,75).  Any movement away from that point would start of chain of events that would lead back to that point, so it is a true equilibrium.  But that is an uninteresting solution, and unrealistic in a free market.

 

 

:In the corrected version above, from the point (50,50) neither firm can increase its own profits by reducing its own output.  So that is equilibrium.  To check the answer, we can start from (75,75).  From there, either firm can increase its profits by increasing its output, and it does.  But from the new point the other firm can increase its profits by increasing its output, and the market ends up at where both firms have increased their output, with profits of (50,50).  Spend a few minutes trying each approach to confirm that is the equilibrium - the Nash equilibrium. (Teacher)

7. Monopolies: should the government regulate them?  Or is regulation worse?

7. Monopolies: should the government regulate them?  Or is regulation worse?

:He raises his price until marginal revenue equals marginal cost .... (Elizabeth)

:He raises his price until marginal revenue equals marginal cost .... (Elizabeth)