1. NHL. Assume that the supply of games is
perfectly inelastic.
a) Demand would fall: price would fall
b) Demand would fall: price would fall
c) Demand would increase: price would rise
d) Demand would fall: but price to consumers would stay the same.
2. Demand for tickets at an NFL stadium.
a) Demand rises: price will rise
b) Demand will rise (if TV viewing is a substitute for attendance): price
will rise.
c) Demand will fall: price will fall
d) Demand will fall: price will fall
e) see #15 below.
3. a) P = 40
b) An increase in income will increase demand, thereby raising
price. Quantity, however, would remain at 100,000.
c) A price ceiling at $20 would cause a shortage of 100,000
tickets for the game. A price ceiling at $50 would have no
effect on the market outcome since it is above the market price.
4.
The attendance that maximizes profits occurs where MR = MC. Thus,
100 - 2Q = 0
Q = 50
P = 100 - Q = 100 - 50 = 50
Thus, TR = 50x50 = 2500. TC = 500 (since there are no variable costs).
Profits = 2000.
5. Pricing decisions:
a) Competitive pricing requires P = MC: thus, P = 0 (since MC = 0),
and Q = 100,000.
b) Monopoly pricing requires P to be set off of demand curve when output occurs
at MR = MC: Q = 50,000 and P = $500
6. Elasticity = -0.40, making the demand for Indians tickets price inelastic.
7. We did this one in class.
8. This is in your notes and the text.
9. This is in your textbook.
10. This is in your textbook and notes.
11. Do owners in sports leagues operate to make a profit? Consider the Florida Marlins baseball team. Immediately after they won the World Series in 1997 they began ridding their team of high-priced players in order to reduce payroll.
12. Check your notes.
13. For you to ponder.
14. On the one hand, the greater the number of teams in a league, the more revenue that must be shared (think about the TV contract). On the other hand, more teams mean more league entry fees and expanded market penetration. There is a danger, however, of over saturation: watered-down talent and geographic market encroachment.
15. Increased games will probably result in lower ticket prices overall; consequently, total gate receipts may be adversely affected if the demand for games is price inelastic. In addition, extending the season may overlap into another sport's season, thereby resulting in lower ticket demand.
16. The primary explanation is that the Redskins have a very profitable stadium contract in which they able to reap large revenues from luxury suites compared to the Yankees. What other factors make the Redskins more valuable than the Yankees?
17. Review the handout on the San Antonio Spurs and the effect of roster depreciation on book profit.
18. Straight-line depreciation over 5 years allows the team to deduct $40 million each year. At a 40% tax rate, the team would save $16 million each year, for a total of $80 million of tax savings.
19. See your textbook.
20. Because league-wide marketing campaigns
are non-rival in consumption, we add the demand curves vertically (the intercept
is multiplied by 20).
Each team’s demand function can be rewritten as P
= 200 – .2Q.
Thus, the market demand curve is P
= 4,000 – 0.2Q.
When P =
1,000, the equilibrium quantity of ads purchased is
1,000 =
4,000 – .2Q
Q =
15,000
21. Yawnnnnnnnnnnn. Except for Tiger's family, who would want to watch a PGA event if Tiger will win it every time?
22. This one is for you to consider.
23. This is a good question to ponder while sitting at your favorite local drinking establishment.
24. By limiting the geographical proximity of league members, teams are able to exert some degree of monopoly power in terms of pricing.
25. Vertical integration.
a) Both act as monopolists.
Upstream firm: produces where MR = MC
100 - 10Q = 20
Q = 8
and P = $60 (found by plugging 8 into the demand function)
Profit = (P-MC)Q = (60-20)8 = $320
Downstream firm: produces where MR =
MC
150 - 10Q = 60
Q = 9
and P = $105 (found by plugging 8 into the demand function)
Profit = (P-MC)Q = (105-60)9 = $405
Total profits are $725.
b) Upstream behaves competitively; downstream is
monopolistic.
Upstream firm: produces where P = MC
100 - 5Q = 20
Q = 16
and P = $20 (found by plugging 16 into the demand function)
Profit = (P-MC)Q = (20-20)16 = $0
Downstream firm: produces where MR =
MC
150 - 10Q = 20
Q = 13
and P = $85(found by plugging 13 into the demand function)
Profit = (P-MC)Q = (85-20)13 = $845
Total profits are $845.
26. The
Marlins can afford to severely cut payroll because no matter how poorly they
perform, they will still remain in MLB. A team in the Premier League would not
engage in such a drastic slash in their payroll as a poor performance on the
field during the season would relegate them to the minor leagues.
27. For you to consider.