Assume that your firm is the N. Y. Yankees baseball team and you have estimated the following demand curve and total cost function.

(2 pt.) Use the data file Final Cost Data.xls to estimate the following quadratic total cost function:

Final_Cost Data.xlsx

TC = b₀ + b₁Q + b₂Q² MC = b₁ + 2b₂Q

Report your regression results. Interpret the coefficient of determination and F statistic. Test whether each of the independent variables statistically significant at the 95 percent confidence level.

(3 pt.) Use your quadratic cost function and the following demand curve.

P = 900 - 0.03Q MR = 900 - .06Q

Calculate marginal cost (MC) and average cost (AC), price (P) and marginal revenue (MR) Graph MC, AC, P, and MR as a function of output (you may use Excel or graph these relationships by hand). Show the price and output that maximizes profit in this graph. Then use algebra to calculate the price and output (view output as a measure of desired run production for the season) that will maximize the firms profit. Calculate your profits at this price and output level.

(2 pt.) Calculate the level of output that minimizes average cost. Show this solution on your graph above. Calculate your profits at this output level.

(2 pt.) Calculate the price and level of output that maximizes total revenue. Show this solution on your graph above. Calculate your profits at this output level.

(2 pt.) Assume that the demand and cost data above is for the N. Y. Yankees and Major League Baseball owners impose a lump sum tax of $4 million dollars to help equalize talent across high revenue and low revenue teams. How will the tax affect your profit maximizing output and the price you charge? How will the tax affect your profits? Explain.

3. Now suppose that the league owners impose a luxury tax of 50 percent on costs that are above $200,000. Calculate your profit maximizing output and pricing levels, and your profits. Now assume the players association has its way and the tax is only 25 percent on costs that are above $500,000. Calculate your profit maximizing output and pricing levels, and your profits. (Hint: you may find it useful to find the output level where the luxury tax kicks in and then examine how this tax affects your cost structure at higher output levels). Graph your solutions to the luxury tax in your graph above.