Question: Economics Problem 3: Competitive Balance (35 points). The demand for Team 1's wins is: P1(w1) = 300 1501111 where wl indicates Team 1's winning percentage.

Economics

Problem 3: Competitive Balance (35 points). The demand for Team 1's wins is: P1(w1) = 300 1501111 where wl indicates Team 1's winning percentage. The demand for Team 2's wins is: P2(w2) = 150 75102 They are the only two teams in the league so 102 = 1 101. 1. First, suppose that the league has implemented no policy to affect competitive balance. a) What are the equilibrium winning percentages? b) What is M C? What is the payroll of each team? 0) What are the prots of each team? 2. Now suppose that the league institutes a revenue sharing agreement where Team 1 Shares 01 = 0.3 of their revenue with Team 2, and Team 2 shares 0:2 2 0.1 of their revenue with Team 1. a) What is each team's marginal revenue after revenue sharing, M R; and M 1%? b) What are the equilibrium winning percentages? c) What is M C? What is the payroll of each team? (1) Graph the equilibrium before and after revenue sharing. Label all relevant inter cepts and values

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