When a sports team hires an expensive new player or builds a new stadium, you often hear
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a. As long as the sports team is profitable, will a mere rise in fixed costs raise the equilibrium ticket price, lower the equilibrium ticket price, or have no effect whatsoever on the equilibrium ticket price? Why?
b. In fact, it seems common in real life for ticket prices to rise after a team raises its fixed costs by building a fancy new stadium or hiring a superstar player: In recent years, it’s happened in St. Louis and San Diego’s baseball stadiums. What’s probably shifting to make this happen? Name both curves, and state the direction of the shift.
c. So, do sports teams spend a lot of money on superstars so that they can pass along the costs to the fans? Why do they spend a lot on superstars, according to monopoly theory?
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