A baseball team has signed a draft pick to a two year contract. The player's expected...

 

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A baseball team has signed a draft pick to a two year contract. The player's expected marginal revenue product in year 1 and year 2 are $1-million and $1.7-million respectively. The contracted wage is $1.3-million in the first year. The interest rate is 7% each year. The competitive wage in year 2 is expected to be $1.8-million. If the team is indifferent about the player resigning with it at the end of his contract, how much will they pay him in the second year? A baseball team has signed a draft pick to a two year contract. The player's expected marginal revenue product in year 1 and year 2 are $1-million and $1.7-million respectively. The contracted wage is $1.3-million in the first year. The interest rate is 7% each year. The competitive wage in year 2 is expected to be $1.8-million. If the team is indifferent about the player resigning with it at the end of his contract, how much will they pay him in the second year?

Answer rating: 100% (QA)

Determining Second Year Wage for Indifference To find the secondyear wage that makes the team indiff... View the full answer