The demand for Team 1's wins is: P1(w1) = 200 100(w1) where w1 indicates Team 1's winning percentage. The demand for Team 2's wins is: P2(w2) = 100 50(w2). They are the only two teams in the league so w1 + w2 = 1. Suppose the league implements a luxury tax of = 0.5 for any revenue generated from wins above w* = 1/2.

a) When w1 > 1/2 , find the equation for team 1's marginal revenue after the luxury tax as a function of their winning percentage. (Hint: Draw a graph and use one point and the slope to find the equation.)

b) What are the equilibrium winning percentages with the luxury tax?

c) What is MC? What is the payroll of each team?