Question

3. Problems and Applications Q3

This chapter discusses companies that are oligopolists in the market for the goods they sell. Many of the same ideas apply to companies that are oligopolists in the market for the inputs they buy. If sellers who are oligopolists try to increase the price of goods they sell, the goal of buyers who are oligopolists is to try to decrease the prices of goods they buy

 

Major league baseball team owners have an oligopoly in the market for baseball players

The owners' goal is to keep players' salaries low

True or False: This goal is difficult to achieve because baseball players demand more money

Baseball players went on strike in 1994 because they would not accept the salary cap that the owners wanted to impose.

True or False: The owners felt the need for a salary cap to help prevent any team from cheating 

Answer 1

It is given that the market is oligopoly. Major league baseball team owners have an oligopoly in the market for baseball players. The owners would like to keep players? salaries low, but it is difficult to achieve because good players demand high salaries and players has an incentive to cheat if given low salaries. But offering higher salaries left the owner with less profits.

The owners' goal is to keep players' salaries LOW

The given statement is FALSE because the salary is paid is according to the abilities and the contribution to the game.

Now, it is assumed that the players went on strike because they would not accept the salary cap that the owners wanted to impose.

The given statement is TRUE that the owner felt the need for a salary cap to help prevent any team from cheating.