Assignment 3

ECN729 Sports Economics Instructor: Esmond Lun Semester: Fall 2023 Assignment 3 Submission of assignments are done on D2L by going to Assessments = ⇒ Assignments and submitting to the corresponding folder. Please submit your assignments in PDF format . Each question is worth 10 marks. Late assignments are not accepted and will receive a grade of zero. Question 1 Suppose the supply of NFL caliber punters ( P ) is given by, W = 100 , 000 + 3 , 000 P where W is represents the wage and P is the number of punters. Given the supply, the marginal factor cost ( MFC ) is MFC = 100 , 000 + 6 , 000 P . The marginal revenue product ( MRP ) of punters can be expressed as, MRP = 460 , 000 − 3 , 000 P What is the competitive wage and employment level? What is the wage and employment level under monopsony? What is the social welfare loss from the monopsony? Illustrate all of the above in a graph. Question 2 Players picked in the NFL draft have two choices: sign with the team that draft them or sit out a year and re-enter the draft. Michael Crabtree was the San Francisco 49ers’ first pick in the 2009 draft and he threatened to sit out the entire season even though the 49ers offered him 16 million guaranteed. Under what circumstances would sitting out an entire year be sensible? Question 3 Curtis Martin is a Hall of Fame (Class of 2012) running back for the New York Jets and New England Patriots. During his playing days with the New York Jets, he signed a contract extension in 2001 with some interesting numbers. He received a 10 million signing bonus to be received before the 2002 season. His 2002 salary was 3.5 million and his 2003 salary was 650,000. The contract was for five years with the final 3 years being a team option. If the option was exercised (Martin gets all three years, the team does not exercise the option every year), he would get a 10 million bonus (received all at once). If the option was not exercised, he would get a default payment of 2.9 million. The salary in each of the option years is 950,000. The probability of the Jets exercising its option was 90%. Also, for the 2003 and 2004 season, he will receive a 1 million roster bonus, which is received for “making the team and not being cut” (he would never be cut from the team). What is the expected present value of this contract (in 2001)? We can assume the player will never be cut (but options can still be declined) and the discount rate is 5%. 1