1.Suppose that a league consists of a large- (L) and small-revenue (S) team. W_L and W_S are their respective winning percentages. Their marginal revenue functions appear below (values in millions of dollars).

MR_L = 2250 - 600 W_L

MR_S = 2000 - 400 W_S

a. Graph the MR functions.

b. Calculate and show on the graph the equilibrium values of W_L and W_S

c. Suppose that the league imposes a luxury tax of $100,000 on each point (.001)

over .500. What are the new equilibrium values of W_L and W_S?

2. The English Premier League currently has no salary cap but is considering implementing one. They are doing this, in part, to reduce payroll disparities across teams that create competitive imbalance.

1. Graph a Lorenz Curve to reflect the current level of payroll imbalance.

1. Show on your graph the effect of implementing a salary cap that reduces payroll imbalance.

1. How would the reduction in payroll imbalance affect the Gini Coefficient for the English Premier League?