Major league baseball teams have imposed what is commonly called the "luxury tax" on themselves. A team is subject to the tax if its payroll exceeds a specified level. The annual threshold for the luxury tax is $189 million for 2014-16. A team that exceeds the threshold must pay 17.5 percent to 50 percent of the amount by which its payroll is above the threshold, where the "tax rate\" depends on the number of years the team is over. This question looks at why teams might subject themselves to this tax. Suppose there are two major league baseball teams, Team 1 and Team 2. They will both choose to offer either high salaries to players or low salaries. They will make their decisions simultaneously. If both choose low each will earn $550; if both choose high each will earn $450. If one chooses high and the other chooses low, the team that chooses high will attract the best players and will earn $650, but the team that chooses low will earn just $350. Show that high is a dominant strategy but that both teams would be better off if both chose low. If one team picks low, then the other team reduces its payoff by $ 100 from picking low instead of high, and if one team picks high, then the other team reduces its payoff by $ 100 from picking low instead of high. (Enter your responses as integers.) If both teams picked low, then their combined payoff would be higher by $|: relative to the outcome where they both pick high. (Enter your response as an integer.) Low Team 1 High Team 2 Low Team 1: 550 Team 2: 550 Team 1: 650 Team 2: 350 High Team 1: 350 Team 2: 650 Team 1: 450 Team 2: 450