Consider a two-team league (Buffalo and Calgary) where demand for winning

percentage is given by PB = 509wB and PC = 40wC . For simplicity, assume that neither team has

any fixed costs.

a. (2 marks) Derive Buffalo's marginal revenue function.

d. (2 marks) Calculate the profit-maximising marginal cost of winning.

b. (2 marks) Derive Calgary's marginal revenue function.

c. (2 marks) Calculate Buffalo and Calgary's optimal winning percentages.

e. (2 marks) Calculate Buffalo's profit-maximising level of profits.

f. (2 marks) Calculate Calgary's profit-maximising level of profits.

Imagine the league implements a salary cap.

g. (2 marks) Calculate the salary-cap marginal cost of winning.

h. (2 marks) Calculate Buffalo's new level of profits.

i. (2 marks) Calculate Calgary's new level of profits.

j. (2 marks) Briefly explain who is in favour of the salary cap and who is against?