Question

In: Economics

The demand curve in the product market for a football team is given by: P (Q)...

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(L) = 2L

where l 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 MRPl for each team?
2. What is the aggregate demand curve for talent (i.e., the MRPL for all teams)?
3. What is the equilibrium 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 equilibrium 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:

  1. What is the all-or-nothing demand curve for talent? What is the all-or-nothing supply curve?

  2. What is the wage that gives all surplus to teams?

  3. What is the wage that gives all surplus to the players?

  4. Suppose the players and teams have an equal bargaining power. What is the equilibrium wage? What is player surplus and team profit?

Solutions

Expert Solution

Rahul Sunny answered 1 year ago
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