Let's return to our video gaming franchise from our previous problem set. Now, however, we'll examine how the presence of either monopoly or monopsony powers (for the franchise OR for the gamers!) affects the behavior of both the market for matches (output) and the market for gamers (labor input). Onward.

A sports franchise has the following production function for output in terms of its only factor input:

Q = F ( L ) = 2L Q: matches / week

L: gamers /week

The demand curve for this product is given by:

Q^D = 100 - P P: $ / match

Q: matches / week

Assume, also, that instead of being perfectly inelastic, the supply curve of gamers (the labor input) is given by:

L^S = W - 10 W: $ / gamer

L: gamers / week

a. Initially, suppose the franchise has NEITHER monopoly power in the output market NOR monopsony power in the input market. Basically, there are too many substitutes for watching video game matches for this franchise to have power over the price they can charge for broadcasting rights AND there are too many substitutes jobs for gamers that the franchise has no power over wages either. Thus, they are output and input price takers.

i. The franchise's production function exhibits ___________ returns to scale, and its MRPL , initially, is equal to:

[ Select ] ["Constant ; P", "Increasing ; 2P", "Constant ; 2P", "Increasing ; P"]

ii. If the franchise maximizes profit, it will hire gamers up to the point where:

[ Select ] ["W = P", "W = 2P", "W / P = 1", "W = 2"]

iii. Equilibrium in both the labor (gamer) market and the output (matches) market for this profit maximizing firm implies:

[ Select ] ["2L + 20 = 200 - 4L", "Q + 20 = 200 - 2Q", "Both (a) and (b) are true.", "Neither (a) nor (b) is true."]

iv. With no power over price in either its output or input markets, then, this franchise will maximize profit by producing __________ matches.

[ Select ] ["30", "40", "50", "60"]

v. The franchise thus maximizes profit by hiring _______ gamers (labor) at a wage of ______ / gamer.

[ Select ] ["15 ; $50", "20 ; $60", "25 ; $70", "30 ; $80"]

vi. The franchise collects a price of _________ per match for broadcast rights and realizes a profit of ___________.

[ Select ] ["$70 ; $900", "$60 ; $800", "$50 ; $800", "$40 ; $0"]