Great Deal! Get Instant $10 FREE in Account on First Order + 10% Cashback on Every Order Order Now

Econ 447: Problem Set #6 Peter W Newberry Due: Monday, April 22, beginning of class Write clearly. Show all your work! You can work in groups, but each student must hand in their own copy. 1...

1 answer below »
Econ 447: Problem Set #6
Peter W Newbe
y
Due: Monday, April 22, beginning of class
Write clearly.
Show all your work!
You can work in groups, but each student must hand in their own copy.
1 Broadcasting Rights and Market Powe
ESPN is negotiating with each team in the Big Ten to
oadcast football games this fall. ESPN estimates
that the advertising and subscription revenue they can earn from airing Q games is
P (Q) = 100− 4Q
The marginal cost for each team to play a game is MC = 20. First suppose that each team negotiates prices
with ESPN separately and, therefore, compete in a Bertrand pricing model.
1. What is the equili
ium price that the team’s will charge ESPN to air their games?
2. How many games will ESPN buy?
3. What is the profit (surplus) for ESPN? What is the profit (surplus) for each Big Ten team?
Now suppose that the teams allow the Big Ten to negotiate the TV contract (making them a monopoly)
4. What is the equili
ium price that the Big Ten will charge ESPN to air their games?
5. How many games will ESPN buy?
6. What is the profit for ESPN? What is the profit for each Big Ten team (assuming they split it equally
among the 14 teams)?
7. Is negotiating as a conference an equili
ium? Why or why not? (BONUS STUDY QUESTION)
8. If your answer to the above is no, how is the Big Ten able to maintain their collusion in reality?
(BONUS STUDY QUESTION)
2 Labor Markets and Unions
The demand curve in the product market for a football team is given by:
P (Q) = 200− 30Q
where Q is the number of wins for the team and P is the price they can charge. There are 30 teams and
each team has a monopoly in the product market.
The production function for each team is given by:
Q(`) = 2`
1
where ` is the amount of ‘talent’ that the hire. The aggregate supply curve for talent is:
w(L) = 22 + L
First assume that the labor market is perfectly competitive.
1. What is the MRP` for each team?
2. What is the aggregate demand curve for talent (i.e., the MRPL for all teams)?
3. What is the equili
ium wage and amount of talent hired? How much talent will each team hire?
4. What is the profit for teams? What is the surplus for players?
Now suppose that the league acts as a monopsony:
5. What is the MFC (marginal factor cost)?
6. What is the equili
ium wage and amount of talent hired? How much talent will each team hire?
7. What is the profit for teams? What is the surplus for players?
Now suppose that the league acts as a monopsony and the players form a players union:
8. What is the all-or-nothing demand curve for talent? What is the all-or-nothing supply curve?
9. What is the wage that gives all surplus to teams?
10. What is the wage that gives all surplus to the players?
11. Suppose the players and teams have an equal bargaining power. What is the equili
ium wage? What
is player surplus and team profit?
3 Collusion
Assume that there are two teams who are competing for talent. Each team is a monopoly in the product
the demand curve given by:
P (Q) = 100−Q
The production function for team i is given by:
Q(`) = `
where ` is the amount of talent that they hire. The aggregate supply curve for talent is:
w(L) = 20 + L
where L is the total amount of talent hired by the two team:
L = `1 + `2
1. Write down the profit function for each team as a function of `.
2. Solve for each team’s best response function.
3. What is the equili
ium amount of labor for each team and equili
ium wage?
4. What is player surplus and profit for each team?
Now suppose teams act as a monopoly in the labor market (i.e., they collude).
5. What is the equili
ium wage and amount of talent and profit for each team?
6. What is the best response for team 1 to team 2 setting the collusive amount of labor? How much profit
would they earn?
Now suppose they play this game repeatedly for an infinite amount of time, where both teams have a discount
ate of δ
7. What is the lowest level of δ that would sustain collusion?
2
4 Other Problems (BONUS STUDY QUESTIONS)
4.1 RSNs
1. Briefly explain the positives and the negatives effects of vertical integration.
4.2 Nash Bargaining
1. Suppose Bryce Harper is negotiating his deal with the Phillies. The Phillies would earn $800 million
over the life of his contract for having Harper and would get a total net benefit of $400 million for the
next best player they could sign. Harper’s bargaining power is w = 35 . What does his next best offe
have to be in order for the negotiated salary to be $330 million?
3
    Broadcasting Rights and Market Powe
    Labor Markets and Unions
    Collusion
    Other Problems (BONUS STUDY QUESTIONS)
    RSNs
    Nash Bargaining
ps6-nn1upf1x.pdf
Answered Same Day Apr 22, 2021

Solution

Rajeswari answered on Apr 24 2021
152 Votes
Equili
ium
1) Broadcasting rights and market powe
Revenue function of EsPn =P(Q) = 100-4Q
Marginal cost = 20
1) Each team would have to atleast
eak in.
Since marginal cost = 20, we get total cost = 20Q+F
Where F is fixed cost.
100-4Q= 20Q+F
Or 24Q = 100-F
Q = (100-F)/24
If there is no fixed cost, we can say
Q = 100/24
So equili
ium price would be
P(Q) = 100-4(100/24) = 83.33
2) ESPN will buy 100/24 nearly 4 games
3) Profit surplus for ESPN = 100-400/24 = 83.33 from each team
Hence from all 20 teams profit = 83.33(20) = 1666.60
4) When monopoly:
5) Big team would get cost as 20Q = 83.33
In total 1666.60. For equili
ium the big team can charge at least 1666.60 as they are monopolists now
6) EsP will buy (P-100)/4
P can be decided by big team as they are monopoly
If p = 200 say then number of games = 25
7) Negotiating is not an equili
ium as ESPN has no other alternate except big games as they are monopolists
8) In reality, supply is controlled by Big games. Hence since they are monopoly they can fix any price they want and Espn has no other choice.
But in reality, this is not possible as whenever prices go high, ESPN will themselves a
ange for a team to get at the price they want.
2. Labour markets and unions
The demand curve in the product market for a football team is given by:
P(Q) = 200 − 30Q
where Q is the number of wins for the team and P is the price they can charge. There are 30 teams and each team has a monopoly in the product market.
Production function is
Q(l) = 2l for each team.
Supply function for talent is
W = 22+L
Case I:
Perfectly competitive
1) MRPl for each team = Marginal revenue product of labour x marginal labou
=2(1) = 2
2) Aggregate demand curve is
3) Equili
ium is reached when demand = supply
i.e. 22+L = 200-60L
Or
Amount of talent = 2.92x2 = 5.84
4) Profit for team would be = revenue-cost
Revenue =200-60(2.92) = 24.92
Cost = 5.84
Profit = 16.08
For each player it would be 16.08/no of players
Case II: Under monopoly
Here supply and demand need not adjust to themselves. Monopolist can fix any price as he wishes as there is no other alternative.
P can be rising a
itrarily.
Demand curve would be minimum 0 and maximum 200
Supply curve would be 22+L
Thus L will range between 0 and 178.
9) Wage that gives surplus to teams is any wage > equili
ium i.e. 2.92x2x30 =175.20
10) 2.92 for each playe
11) When equal...
SOLUTION.PDF
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here
Attach File