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The Economics of Sports 5th Edition by Michael A. Leeds - Test Bank
The Economics of Sports 5th Edition by Michael A. Leeds - Test Bank
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Sample Questions
Chapter 4
1. Baseball has not been convicted of violating the Sherman Antitrust Act
because
(b) baseball was the first sport to institute the Reserve Clause.
(a) Individually, each player’s best strategy leads to the worst results for the
players as a whole.
Answer: (a) While all these are true about the prisoner’s dilemma, only (a) is
a truly interesting result. All applications of game theory involve strategic
behavior and the strategy of other players. Many games, such as rock, papers,
scissors, have a single, unique Nash equilibria. Finally, many games can be
designed that allow for dominant strategies that do not result in a prisoner’s
dilemma.
Answer: (d) A dominant strategy is one that is the best response for the
player regardless of what the opponent is doing.
5. The monopoly power that the NCAA held over TV networks fell apart due
to
Answer: (c) While other sports have long been denied the blanket
exemption from antitrust laws that baseball has, they have had limited
exemptions from antitrust laws. These limited exemptions have allowed the
leagues to negotiate broadcast rights or to merge with rival leagues.
10. In most professional sports leagues, over the course a single season, the
largest proportion of team cost is
(b) fixed.
(c) variable.
(d) zero.
Answer: (b) The majority of costs for most teams are player contracts and
playing facilities which are both a fixed cost within a season.
(b) How has the NCAA exercised its cartel power? Give two distinct examples.
Answers: (a) An incidental cartel is a group of firms that come together to act
cooperatively in order to maximize monopoly profits. However, it does not
initially form in order to act like a cartel. In this case, the NCAA formed in order
to make football safer and only later began to see its economic power.
(b) The NCAA acted like a monopoly when it limited the number of football
broadcasts. It continues to act like a monopoly when it negotiates broadcasts
rights to its basketball tournament. It also acts like a monopsony when it limits
the returns to college athletes.
12. Some economists argue that cooperation between franchises should not
be considered in violation of antitrust laws. What argument do they use?
13. What is the loss to fans from the monopoly power that sports franchises
exert? Be precise in your reasoning.
Figure 4.3
14. Explain with a graph how a ticket price ceiling placed on a monopoly
sports franchise (that does not sell out its games) may actually lower ticket
prices and raise attendance. Assume that marginal costs are fixed.
Answer:
17. Given that a minor league baseball monopolist faces a market demand
function of Qd = 12 – P
(b) If the monopolist faces a constant marginal cost of $3 per unit, how many
units will she produce?
Answers: (a) Producer surplus per unit is the difference between the market
price that the producer receives at Q* and the least amount that the producer is
willing to accept in order to sell Q* (shown by the height of the supply
curve S at Q*)
(b) Producer surplus = $5 – $5 = 0
(b) Consumer surplus = ¥ – $5 = ¥
20. Write down the different costs associated with putting on an NFL game.
Classify these costs as either fixed costs or variable costs. Assume that a
single playing season constitutes the short run.
21. How did the rise of privately owned cable TV networks affect the revenue
structure of European soccer teams?
MR = 170 – 8Qd
1. $20
2. $10.
3. $100
4. 0
90. $90.
91. $170.
92. $680.
93. $20
Answer: a. Monopoly firms are “price-makers” who equate marginal revenue
(MR) with marginal costs (MC) and price off their demand curve. In this case,
equating MC with MR yields the following: 170-8Qd = 10; solving for Qd yields a
quantity demanded of 20. Plugging 20 into the original inverse demand equation
yields a monopolist’s price of $90.
1. Natural monopoly.
2. For-profit cartel.
3. Incidental cartel.
4. Perfect-competitor in collegiate athletics.
Answer: c. Unlike firms who purposefully collude with the express intent of
agreeing to restrict output and drive market prices up, the not-for-profit NCAA
has morphed into an “incidental cartel” by gradually emerging as the single
governing body to regulate (most) collegiate athletics.
1. Football.
2. Basketball.
3. Baseball
4. Hockey.
Answer: c. A Supreme Court ruling in 1922 ruled unanimously that baseball was
not subject to antitrust laws.
1. Zero fixed costs.
2. Increasing average total costs (ATC) over the entire range of output.
3. Decreasing average total costs (ATC) over the entire range of output.
4. The existence of only one firm in the industry.
Answer: c. A natural monopoly is characterized by falling ATC over their entire
range of output. This cost advantage differentiates them from “regular
monopolies” and provides them with an advantage over possible competitors.
Thus, one could say “they are a natural” to become a monopoly.