Question: Assume that there are two teams (for simplicity, call them team 1 and team 2) that produce rugby games. Each team is a monopoly in

Assume that there are two teams (for simplicity, call them team 1 and team 2) that produce rugby games. Each team is a monopoly in their product market with demand curve: P(q) = 104 2q

The production function for each team is given by: q(K) = K where K is the quantity of labor hired by the team.

The aggregate supply of labor is: w(L) = 20 + 2L where L = K1 + K2 is the total amount of labor hired by the two teams

First assume that the two teams compete against one another by simultaneously choosing a quantity of labor to hire

a) Write out the profit function for team 1.

b) Find each team's best response function.

c) What is the equilibrium amount of labor chosen by each team?

d) What is the equilibrium wage?

e) What is the profit for each team?

Second assume that the two teams collude as a league.

f) Find the aggregate demand in the product market for the league. (Hint: Aggregate the two teams' identical product demand curves.)

g) What is the equilibrium amount of labor in the market (L)?

h) What is the new equilibrium wage?

i) If the teams agree to split the profits, how much labor is hired by each team (K)?

j) What is the profit for each team?

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