Changes

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:[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, under this situation.  All students correctly realized that the equilibrium must be where the profits are equal, either (50,50) or (75,75).  If the profits increased for each firm when it increases profits, then the equilibrium would be (50,50), which would be the correct answer on an exam.  But under the numbers provided, firms increase profits by reducing output, and (75,75) is the correct answer.]

: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 one of the firm's 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.

 

:The chart should have had the ordered pairs reversed:

 

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

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