Question
The demand curve in the product market for a football team is given by: P(Q) = 200 30Q where Q is the number of wins
The demand curve in the product market for a football team is given by: P(Q) = 200 30Q where Q is the number of wins for the team and P is the price they can charge.
There are 30 teams and each team has a monopoly in the product market. The production function for each team is given by: Q(j) = 2j where j is the amount of 'talent' that the hire. The aggregate supply curve for talent is: w(L) = 22 + L
Now we will solve for situations where 1. the players' union has exclusive market power and 2. when both parties have market power. First, assume that the players' union has market power (i.e., they are a monopolist seller of labor) and the league does not have market power. Note that the players' union maximizes player profit (not the wage bill).
a What is the equilibrium wage?
b What is the equilibrium amount of talent hired?
c How much talent will each team hire?
d What is the total surplus for teams?
e What is the total surplus for players?
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