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5. (20 marks) Unless otherwise instructed, each of the parts in this question stand alone and do not connect to previous or subsequent parts. a (2 marks) Consider a two-team league where marginal revenue for each team is given by 3-W and 3-w . respectively. Calculate the profit-maximising winning percentages and marginal cost. b. (2 marks) Continue with the previous part. Assume that the top pick in the entry draft adds 30 percent to the team 1's marginal revenue and the second pick adds 20 percent to the team 2's. Recalculate the profit-maximising winning percentages and marginal cost. c. (2 marks) Continue with the previous part. If you represent the top draft pick in the draft, calculate how much money you could demand reasonably for your client. d. (2 marks) A 30-team league had H =0.26 and a theoretical maximum of H.=0.36. Calculate the normalised variance and briefly comment on whether the league is more competitive or uncompetitive.e. (2 marks) Consider a labour market where labour demand and supply are given by w=240-21" and w=30+41 , respectively, the competitive market equilibrium quantity of labour is 35, the wage is 170, consumer surplus is 1225 and producer surplus is 2450. If the owners collude, calculate the new equilibrium quantity of labour and wage. f (2 marks) Continue with the previous part. Calculate the new consumer surplus and producer surplus. E. (2 marks) Continue with the previous part Briefly explain if, compared to the competitive market equilibrium, the owners and or players are better off and if the overall wellbeing of the league has increased or decreased. h. (2 marks) A company does $100 million in sales. It has some degree of pricing power in that it sells its output for $10 where it costs it $8 to make. Its advertising is highly effective. For every one percent it increases its advertising budget, its output increases by five percent. Unfortunately, its advertising is very aggressive because it causes its competitors to increase theirs by two percent for every one percent the company increases its own. When its competitors increase their budgets by one percent, it causes problems for the company in that demand for its output falls by two percent. Calculate how much. in dollars, the company should spend on advertisingi. (2 marks) Consider a team in the bottom league where its probability of promotion to the top league is equal to P. = w. its total cost is given by C= 200+100w and demand is given by P =200-125w. It is expected that it can earn $130 million in the top league next year but only $20 million if it remains in the bottom league next year. It uses a discount rate of r = 0.1 (ie, 10 percent). Calculate its optimal winning percentage this year. j. (2 marks) A big Las Vegas casino expects that, for an upcoming UFC match. 50 percent of the money wagered will be placed on Daniel Cormier winning. 40 percent of the money will be bet on Stipe Miocic winning and 10 percent of the money will be bet on a draw. If the casino wants to guarantee a profit of $0.20 on every $1 bet, what should it set the odds at for each outcome? (You may use British. European or American odds for your answer.)
