Problem 2: Location Choice. Winnipeg currently has an NHL team (the Jets). Demand for Jets games in Winnipeg is given by: PW(QW)=4103QW Atlanta does not currently have an NHL team, but they would like to attract the the Jets. Demand for Jets games in Atlanta is given by: PA(QA)=3503Q The marginal cost of production in both cities is constant at MC=50. 1. Suppose first that no subsidies (i.e., bids) are allowed. a) Calculate the profits earned by the Jets in Winnipeg. b) Calculate the profits earned by the Jets in Atlanta. c) Will the team move to Atlanta? 2. Suppose now that cities can offer subsidies (i.e., bids) to attract the team. a) What is the value (consumer surplus) in Winnipeg? b) What is the value (consumer surplus) in Atlanta? c) Will the team move to Atlanta? d) How much is the winning subsidy? e) What is the profit plus subsidy for the team? f) What is the value minus subsidy for the winning city? 3. Suppose now that that cities can offer subsidies (i.e., bids) to attract the team, and a private benefactor publicly announces that they will donate 6000 directly toward Atlanta's subsidy if the Jets agree to move to Atlanta. a) What is the highest subsidy that Atlanta is now willing to offer? b) Will the team move to Atlanta now? Briefly explain your logic. c) How much is the winning subsidy? d) What is the profit plus subsidy for the team? e) What is the value minus subsidy for the winning city? (Make sure to account for any donation that is made.) Problem 2: Location Choice. Winnipeg currently has an NHL team (the Jets). Demand for Jets games in Winnipeg is given by: PW(QW)=4103QW Atlanta does not currently have an NHL team, but they would like to attract the the Jets. Demand for Jets games in Atlanta is given by: PA(QA)=3503Q The marginal cost of production in both cities is constant at MC=50. 1. Suppose first that no subsidies (i.e., bids) are allowed. a) Calculate the profits earned by the Jets in Winnipeg. b) Calculate the profits earned by the Jets in Atlanta. c) Will the team move to Atlanta? 2. Suppose now that cities can offer subsidies (i.e., bids) to attract the team. a) What is the value (consumer surplus) in Winnipeg? b) What is the value (consumer surplus) in Atlanta? c) Will the team move to Atlanta? d) How much is the winning subsidy? e) What is the profit plus subsidy for the team? f) What is the value minus subsidy for the winning city? 3. Suppose now that that cities can offer subsidies (i.e., bids) to attract the team, and a private benefactor publicly announces that they will donate 6000 directly toward Atlanta's subsidy if the Jets agree to move to Atlanta. a) What is the highest subsidy that Atlanta is now willing to offer? b) Will the team move to Atlanta now? Briefly explain your logic. c) How much is the winning subsidy? d) What is the profit plus subsidy for the team? e) What is the value minus subsidy for the winning city? (Make sure to account for any donation that is made.)
