In Class Practice Problems 2-2 2

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Economics

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Feb 20, 2024

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EC 497 – Sports Economics In-Class Group Assignment – 2/1/24 1. Which type of league acquires more talent in the long-run model, open or closed? Explain why using the appropriate model. 2. Explain the difference between persuasive models of advertising and informative models of advertising. 3. Teams consistently set ticket prices on the inelastic region of their demand curve. Why would a team choose to do so in the short-run model when raising prices would increase revenues? 4. Various factors affect the position of the demand curve in sports markets. List two examples of factors that will determine the position of the demand curve. 5. What is the primary long-run decision variable for a sports team? 6. Draw the demand curve for sports if there are no substitutes. Explain why this situation is unlikely to happen in reality and we are more likely to observe imperfect substitutes.

7. List two differences between the structure and governance of teams in North America versus teams in Europe 8. Consider a professional basketball team operating in the short-run a. (3 points) Draw the short-run demand curve, marginal revenue curve, and total revenue curve. b. (2 points) Indicate the profit maximizing attendance level and ticket price a team will charge. c. (3 points) Suppose that the market the basketball team operates in adds a professional hockey team. Show graphically how this will affect the short-run demand curve and short-run revenue curve. d. (2 points) Explain how the addition of the hockey team will affect the profit maximizing attendance level and ticket price for the team.

9. Consider two professional basketball franchises, S and L. Both teams initially face the same cost function. However, team S operates in a smaller market than team L. e. Draw the long-run cost function and long-run revenue function for both teams. Label the winning percentage for each team. f. Based on your graph, which team will be more successful in the long-run? Explain your answer. g. Suppose that free agency is introduced to the league and players prefer to live in large markets. How will this change the graph from (a)? Draw the changes that will occur on the figure and label the new winning percentages where appropriate. h. Based on your graph, how does incorporating player preferences into the model affect the long-run success of teams?

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