Econ 323

Question 1

Marginal Revenue

Answer 1

holds all inputs constant to see how production increases with an additional unit of an input

Question 2

Law of diminishing returns

Answer 2

as a team increases 1 input and holds all other inputs constant the marginal output eventually falls

Question 3

Profit maximizing rule

Answer 3

The firm maximizes profit by producing the quantity of output where marginal revenue equals marginal cost.

Question 4

monopoly

Answer 4

a single firm that sells a good in the market(firn demand = market demand)

Question 5

Monopsony

Answer 5

a market situation in which there is only one buyer and multiple sellers

Question 6

factors that change demand

Answer 6

consumer income, price of substitute, price of compliments, consumer takes

Question 7

Factors that change supply

Answer 7

input prices, innovation, taxes, natural events

Question 8

Elasticity of demand and supply

Answer 8

• We want to know how quantity demand supplied changes with a change in price
• Elasticity changes the slope of demands and supply curves

Question 9

Demand is elastics

Answer 9

Ed<-1

Question 10

demand is inelastic

Answer 10

Ed>-1

Question 11

Production functions in sports

Answer 11

Games
Stadiums
Players
Fans
food

Question 12

Maximizing wins

Answer 12

Making sure you win a lot of games, but profit maximizing is still a priority

Question 13

Main components of revenue for sports teams, what is included in each category

Answer 13

5 main sources:
-ticket sales
-broadcasting
-licsening income
-venue revenue
-transfer from other team

Question 14

Which types of revenue are more important for which sports?

Answer 14

Gate revenue: bigger in MLB
Broadcast revenue:bigger in NFL
revenue licensing: NFL video games

Question 15

Revenue sharing

Answer 15

When teams are in a league pool and divide revenues against all teams

Question 16

Deducting player depreciation from taxes

Answer 16

Sports teams may claim that players degrade after time(skills get sloppy) so they depreciate from players taxes.

Question 17

Operating income

Answer 17

• Net revenue from day to day operations
• Good indication of profitability from a team

Question 18

Vertical integration

Answer 18

is the combination of different stages of production
Ex: when starbucks buys coffee farms

Question 19

Why do we need leagues

Answer 19

Leagues allows the games to be fair by setting rules. This makes sure the games are the same everytime
The leagues help teams profit maximize by limiting entry, promoting competitive balance, sharing revenue

Question 20

optimal league size

Answer 20

-Big markets have bigger boost from league advertising then small market teams
-This type of advertising is the public good- nonrival and nonexcludable

Question 21

How does vertical integration work

Answer 21

A team controls not only the creation of their product(a game) but also the distribution(the broadcast)

Question 22

Revenue licsencing

Answer 22

• reduce competition between teams for contracts giving the league more power when negotiating brands/deals

Question 23

League wide advertising

Answer 23

Goal with advertising is to increase popularity of the league as a whole
Teams don’t all benefit equally
Big markets have bigger boost from league advertising then small market teams
This type of advertising is the public good- nonrival and nonexcludable

Question 24

league

Answer 24

league- a voluntary association that promotes the common interests of all its members.($$$

Question 26

How do leagues solve this public goods problem (the problem of buying league-Wide ads)

Answer 26

They solve the problem by benefits of the advertising being easily visible on a team by team basis By identifying marginal benefits for different teams, the league can change the appropriate changes of cost Big market teams contribute more league advertising than small market teams

Question 27

Free riding

Answer 27

attempting to pay less than your marginal benefit for a public good to shift the burden on to others

Question 28

Typical result

Answer 28

the level of the public good created is lower than the optional level

Question 29

Consumer surplus-

Answer 29

net value given to consumers due to market activity

Question 30

Producer surplus

Answer 30

net value given to producers due to market activity

Question 31

Deadweight loss-

Answer 31

losses in a market that’s don’t have offsetting gain elsewhere

Question 32

Marginal consumer-

Answer 32

someone who might see some value in your product or service but not at your favorite price point

Question 33

Why would a monopolist not charge the monopoly price?

Answer 33

Prices should be reduced to sell more tickets, and fill empty seets Additional profit gained from concessions, and merch

Question 34

Variable ticket pricing-

Answer 34

pricing tickets to games differently according to expected demand to the game

Question 35

Dynamic ticket pricing-

Answer 35

djusting ticket prices according to unknown game characteristics such as bad weather, or prices adjusted during the season, all star pitching matchup.

Question 36

Price discrimination-

Answer 36

-charging consumers different prices based on their willingness to pay -If a team could perfectly price discriminate, social surplus would be maximized(all goes to producer)

Question 37

Seat liscence/ two part pricing

Answer 37

Charging a price which consists of of a fixed component and a variable component that varies the amount of product a consumer buys

Question 38

When do monopolies benefit society?

Answer 38

- monopoly- large firms operate more efficiently than smaller firms - They arise from natural functioning of the marketplace