In 2012, the San Francisco Giants Major League Baseball team signed pitcher Matt Cain to a contract

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In 2012, the San Francisco Giants Major League Baseball team signed pitcher Matt Cain to a contract that paid him a salary of $20 million per year from 2013 through 2017. The annual salaries were all guaranteed, and the Giants had to pay Cain whether he performed well or not—and they had to pay him even if the team released him and he no longer played for the Giants. During 2016, Cain pitched ineffectively, and at the beginning of the 2017 season, it was uncertain whether the Giants would keep him as a regular player. Giants General Manager Bobby Evans was quoted as saying that in the decision on Cain, his salary wasn’t a factor: “It’s really not about the money at this point.” Is Evans’s analysis correct? Should the salary the Giants are paying Cain matter in deciding whether to keep him on the team? Would the team’s decision be affected if Cain were receiving the Major League Baseball minimum salary of $535,000? Briefly explain.  

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Economics

ISBN: 978-0134738321

7th edition

Authors: R. Glenn Hubbard, Anthony Patrick O Brien

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