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sports economics

Questions and Answers of Sports Economics

Money-Back-Plus Guarantee. The equilibrium price in the thin market is $2,600. Suppose car sell- ers provide a special money-back-plus guarantee:" A dissatisfied buyer can return a car for a refund
Paying for Information. You are willing to pay $7,000 for a high-quality car a plum. The current price of used cars is $4,000, and 4 of 5 cars in the mar ket are lemons, meaning that 1 in 5 is a
A money-back guarantee will be provided by the own but not by the owners of ers of (lemons/plums)
Consider a thin used-car market. Someone just devel- oped a device that can instantly identify the nearest plum in a used-car lot. The device works only once. The maximum amount that a consumer would
Responding to the Lemons Problem
Adverse Selection of MP3 Players. Consider the market for used MP3 players, with knowledgeable sellers and ignorant buyers. Half the MP3 players in existence are plums and half are lemons. Each buyer
Purchasing a Fleet of Used Cars. You are respon- sible for buying a fleet of 10 used cars for your employees and must pick either brand B or brand C. For your purposes, the two brands are identical
Groucho Club Consider a classic quip from Groucho Marx "I won't join any club that is willing to accept me as a member." Suppose Groucho wants to associate with high-income people (the higher the
Double Ignorance. Suppose both buyers and sellers of used cars are ignorant No one can distinguish between lemons and plums. Would you expect the market to be dominated by lemons? Illustrate with a
Fashion and Prices. You are in the market for a used car and have narrowed your options to two types of cars, type F and type P. According to Consumer Reports, the two types of cars have roughly the
Consumer Reports. You want to buy a used car, specifically a 1999 Zephyr. According to Consumer Reports, half the 1999 Zephyrs now on the road are lemons, meaning they break down frequently and
Suppose you are willing to pay $1,000 for a low-quality used car and $5,000 for a high-quality used car. If there is an 80 percent chance of getting a low-quality car and 20 percent chance of getting
Arrows up or down: A decrease in the minimum sup- ply price for a plum (high quality) shifts the plum sup- ply curve and the likelihood of buying a plum
We will have a thin market for used cars if the mini- mum supply price for plums (high quality) is (greater than/less than) the willingness pay for a lemon
The following table shows the prices and quantities in three different used-car markets. Complete the table by filling in the last two rows. Market A Market B | Market C Assumed chance of getting 60%
The supply curve for high-quality used cars lies (above/below) the supply curve for low- quality used cars.
There is asymmetric information in the used-car mar- (buyers/sellers) cannot dis- ket because tinguish between lemons and plums but (buyers/sellers) can
Gates to Gotcha? A construction project at your city's airport is nearing completion, and your job is to decide how to use the 10 new airport gates. The city is currently served by Gotcha Airlines,
Willingness to Pay for New Airport Gates. Your city is considering an airport-expansion project that would increase the number of airport gates and allow additional airlines to serve your city
There were two sources of pressure to deregulate elec- tricity market (1)-
The deregulation of the airline industry led to prices on average, but prices in cities. and (2).
Deadweight Loss from a Merger. Consider a mar- ket that is initially served by two firms, each of which charges a price of $10 and sells 100 units of the good. The long-run average cost of production
Cost Savings from a Merger. Consider the following statement from a firm that has proposed a merger between two companies "The two companies could save about $50 million per year by combining our
Check YellowPages.com? On Yellin's first day on the job as an economist with the FTC, she was put on a team examining a proposed merger between the coun- try's second- and fourth-largest hardware
million units per year. (Related to Application 4 on page 611.)a. How does the acquisition affect X's annual profit?b. How many years will it take for X to recover the cost of acquiring Y?
Recovering the Acquisition Cost. The long-run aver- age cost of production is constant at $6 per unit. Suppose firm X acquires Y at a cost of $24 million and increases the price to $14. At the new
In the Interstate Baking case discussed in this chapter, scanner data showed that the products of Interstate and Continental Baking were menger would lead to higher. 25 Predatory pricing provides a
In the Staples case discussed in this chapter, the data showed that competition with Office Depot led to harm prices, suggesting that a merger would
There are three types of antitrust policies: (1) (3) (2) and
The purpose of antitrust policy is to promote which leads to lower.
million subscribers and generates negative economic profit: Average cost exceeds the $13 price. Assume that the marginal cost is constant at $2 per subscriber (Related to Application 2 on page
Satellite Radio Merger. Suppose each of the two satellite radio firms initially has
From Private to Public Water Supply: Consider the British experience with water provision. Suppose that an unregulated private monopoly has a price of $3 per unit, a quantity of 10 million units, an
Environmental Costs for Regulated Monopoly. The Bonneville Power Administration (BPA) is a regulated monopoly in the Northwest that uses dozens of hydroelectric dams to generate electricity.
Decrease in Cable Demand. Consider a cable TV company that has a fixed cost of $48 million and a marginal cost of $5 per subscriber. The company is regulated with an average-cost pricing policy.a.
Sirius XM Radio became profitable-just barely- about subscribers. (Related to with Application 2 on page 605.)
When the British switched from private water supply to public supply, the quality of water. consumption per capita per unit of output Application 1 on page 605.) and capital cost (Related to
Under an average-cost pricing policy, the maximum price is shown by the intersection of the. curve and the curve.
A natural monopoly occurs when the long-run cost curve lies entirely (above/below) the demand curve of the typical firm in a two-firm market.
The entry of a second firm shifts the demand curve of the original firm to the the original firm will sell a(n). so that at each price quantity
Arrows up or down At a natural monopolist's current level of output, marginal cost exceeds marginal rev enue. The firm should. its output and its price.
Got Milk? Bessie and George are milk producers, and each must decide whether to spend $7 million on an advertising campaign. If neither advertises, each will cam $10 million in net revenue from sales
Automobile Advertising. Consider two automobile companies that are considering advertising campaigns. If neither firm advertises, each will earn net revenue of $5 million. If each spends $10 million
In Figure 27.11 on page 593, rectangle 2 is not a Nash equilibrium because if best response of - is to. advertises, the
Consider a duopoly with two firms managed by Huck and Stella. A standard advertising campaign has a cost of $5 million per firm. If both firms run a standard cam- paign, the net revenue from sales
The advertisers' dilemma shown in Figuren 27.11 on page 593 occurs when advertising causes a relatively increase in the total sales of an industry
The advertisers' dilemma is that both firms would be advertises, but each has an better if incentive to
Going Off Patent. Consider the producer of a branded drug that will soon go off-patent and.com- pete with generic versions of the drug. The average cost of production is constant at $8 per dose. The
Shuttle Deterrence? Consider the market for air travel between Boston and New York. The long-run average cost is constant at $100 per passenger, and the demand curve is linear, with a slope of-$2 per
Take the Pen Money and Run? Consider the exam- ple of Reynolds International Pen and the ball-point pen. Suppose the unit cost of a ballpoint pen is $1.00. Reynolds has two options 1. Passive. Pick
Ninja Turtles versus Tai Chi Frogs. The demand for fantasy amphibians is linear, with a slope of -$0.01 per amphibian. The average cost of production is constant at $3. The demand curve intersects
The producers of branded drugs are responding to the introduction of generic competitors by (Related to and Application 3 on page 591.)
A contestable market has relatively (high, low) costs.
At the beginning of this chapter, we saw that Katrina paid more for her plane ticket than Brian paid for his, even though they both live in cities that are served by a single airline. Two cities with
In Figure 27.10 on page 590, rectangle 2 is not a Nash equilibrium because if quantity, the best response for picks a small is to
Arrows up or down. As the minimum entry quantity decreases, the entry-deterring quantity. the limit price entry-deterrence strategy. and the profit from the
To deter entry, a monopolist can simply threaten that if a second firm enters, the monopolist will cut its price to the average cost.. (True/False)
Consider a market with an insecure monopolist. The zero-profit quantity is 60 units and the minimum entry quantity is 5 units. The entry-deterring quantity units. The zero-profit price is $80. is The
Use the game tree in the previous exercise as a starting point. If the minimum entry quantity increases, a single number in one of the profit rectangles changes from to a smaller number. If the
Omo has a monopoly on limousine service, and Carla is thinking about entering the market. The outcome of the entry-deterrence game represented by the game tree on the following page is that Otto
The cheaters' dilemma is that all three cheaters would be better off if each. an incentive to, on page 587.) , but each cheater has (Related to Application 2
The prisoners' dilemma is that each prisoner would be better off if both prisoners. up- but both end
Arrows up or down: In the kinked demand curve model, the demand for a firm's product is relatively elastic when the price inelastic when the price and relatively'5.1 Consider a market with two firms
An entrepreneur who acts in a manner consistent with the kinked demand curve model is a(n) (optimist/pessimist).
Arrows up, down, or horizontal Under the kinked demand curve model, a firm that cuts its price expects its competitor to its price, while a firm that raises its price expects its competitor to its
Under a price-leadership model, a sudden drop in price by the leader is unlikely to trigger a price war if other firms believe that the price cut was caused by higher
Hotel Price Fixing? Waikiki Beach has two hotels, one run by Juan and a second run by Tulah. The aver- age cost of providing rooms is constant at $30 per day. Assume that low-price guarantees are
Airporter Price Fixing? Hustle and Speedy provide transportation service from downtown to the city air- port. Assume that low-price guarantees are illegal. The average cost per passenger is constant
Vitamin Market Areas. Beta and Gamma produce vitamin A at a constant average cost of $5 per unit. Assume that low-price guarantees are illegal. Here are the possible outcomes Price fixing (cartel)
Buzz and Moe are duopolists in the lawn-care mar- ket. The following game tree shows the possible pricing outcomes and their payoffs. The outcome of the pricing game is that Buzz will pick the price
In Figure 27.3 on page 578, suppose Jack promises Jill that if she picks the high price, he will too. Is this promise credible? Explain
In Figure 27.3 on page 578, rectangle 3 is not a Nash equilibrium because if is to pick the -price, the best response of -price. picks a(n)
In a Nash equilibrium, each player is doing the best he or she can, given
The duopolists' dilemma is that each firm would make more profit if both picked the both firms pick the . -price. price, but
A dominant strategy is the strategy that allows one firm (True/False) to dominate the market..
Arrows up or down: If we move from the cartel out- come to the duopoly outcome, the price. the quantity per firm firm and the profit per
Although there are relatively small in the production of breakfast cereal, the market is an oli- gopoly because of the substantial investment in required to enter the market.
Oligopolies occur for three reasons: (1) the govern- ment may limit the number of firms in a market by granting or limiting the number of (2) large economies of (3) to get a foothold in the market,
For a market with four firms, each with a 25 percent market share, the Herfindahl-Hirschman Index (HHI) is equal to .
A market is considered "unconcentrated" if the Herfindahl-Hirschman Index (HHI) is below and is "highly" concentrated if the HHI is at least
Word-of-Mouth Book Sales. Consider a publisher who earns a profit of $2 per book sold. An advertise- ment that costs $320,000 would sell 100,000 books directly To make the advertisement worthwhile,
The Cost of Celebrities. Consider a firm that hires an expensive celebrity to advertise its products. Does the firm have an incentive to prevent its customers from discovering how much it pays the
Movie-Buzz Numbers. Consider a theater that earns a profit of $2 per movie ticket sold. An adver- tisement that costs $3,400 would have the direct effect of getting 1,000 people to buy tickets. To
An expensive advertising campaign for a movie sends the signal that the movie will generate (Related to enough to Application + on page 568.)
In Table 26.2 on page 569, the profit from repeat cus tomers will equal the cost of the advertisement if there repeat customers. are
An advertisement that succeeds in getting consumers to try the product will be sensible only if the number of customers is large.
Advertising for eyeglasses i (increases/ decreases) the price of eyeglasses because advertising promotes
Uniform Trade-Offs. A prominent feature of Mao's Communist China in the 1940s through the 1970s was the blue uniform worn by all citizens.a. Explain the trade-offs associated with the use of
The entry of firms into the market for space flight is expected to the price of a trip to the International Space Station from $47 million to about (Related to Application 3 on page 567.)
Arrows up or down As product differentiation dimin ishes, the price elasticity of demand for the product of a monopolistically competitive firm the average cost of production. and
In the long-run equilibrium in a perfectly competitive market, price is equal to both and
A perfectly competitive firm has a demand curve, whereas a monopolistic competitive firm has a -demand curve.
When products are differentiated by location, the entry of firms generates benefits for consumers in the form of.
The trade-off with entry is that an increase in the number of firms leads to greater higher but
Zero Price for a Permit. Consider a city that initially issues five licenses to pet groomers and does not allow the licenses to be bought and sold. Shortly after an economist joins the city licensing
Lawn-Cutting Equilibrium. Consider the market for cutting lawns. Each firm has a fixed daily cost of $18 for equipment, and the marginal cost of cut- ting a lawn is $4. Suppose each firm can cut up
How Many Book Stores? The city of Bookburg ini- tially allows only one book store, which sells books at a price of $20 and an average cost of SII. Suppose the city eliminates its restrictions on book
Willingness to Pay for a Dunkin' Donuts Franchise. You operate a Dunkin' Donuts shop under a franchise agreement. You pay a royalty of 6 percent of your sales revenue to the parent company. Your
To enter the donut market as a seller of Dunkin' Donuts, you'll pay a one-time franchise fee of S- and then pay. percent of your sales. (Related to Application 2 on page 565.)
There are two conditions for a long-run equilibrium in a monopolistically competitive market (1) (2) equals equals and

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