Econ 323 Flashcards
Marginal Revenue
holds all inputs constant to see how production increases with an additional unit of an input
Law of diminishing returns
as a team increases 1 input and holds all other inputs constant the marginal output eventually falls
Profit maximizing rule
The firm maximizes profit by producing the quantity of output where marginal revenue equals marginal cost.
monopoly
a single firm that sells a good in the market(firn demand = market demand)
Monopsony
a market situation in which there is only one buyer and multiple sellers
factors that change demand
consumer income, price of substitute, price of compliments, consumer takes
Factors that change supply
input prices, innovation, taxes, natural events
Elasticity of demand and supply
- We want to know how quantity demand supplied changes with a change in price
- Elasticity changes the slope of demands and supply curves
Demand is elastics
Ed<-1
demand is inelastic
Ed>-1
Production functions in sports
Games
Stadiums
Players
Fans
food
Maximizing wins
Making sure you win a lot of games, but profit maximizing is still a priority
Main components of revenue for sports teams, what is included in each category
5 main sources:
-ticket sales
-broadcasting
-licsening income
-venue revenue
-transfer from other team
Which types of revenue are more important for which sports?
Gate revenue: bigger in MLB
Broadcast revenue:bigger in NFL
revenue licensing: NFL video games
Revenue sharing
When teams are in a league pool and divide revenues against all teams
Deducting player depreciation from taxes
Sports teams may claim that players degrade after time(skills get sloppy) so they depreciate from players taxes.
Operating income
- Net revenue from day to day operations
- Good indication of profitability from a team
Vertical integration
is the combination of different stages of production
Ex: when starbucks buys coffee farms
Why do we need leagues
Leagues allows the games to be fair by setting rules. This makes sure the games are the same everytime
The leagues help teams profit maximize by limiting entry, promoting competitive balance, sharing revenue
optimal league size
-Big markets have bigger boost from league advertising then small market teams
-This type of advertising is the public good- nonrival and nonexcludable
How does vertical integration work
A team controls not only the creation of their product(a game) but also the distribution(the broadcast)
Revenue licsencing
- reduce competition between teams for contracts giving the league more power when negotiating brands/deals
League wide advertising
Goal with advertising is to increase popularity of the league as a whole
Teams don’t all benefit equally
Big markets have bigger boost from league advertising then small market teams
This type of advertising is the public good- nonrival and nonexcludable
league
league- a voluntary association that promotes the common interests of all its members.($$$
How do leagues solve this public goods problem (the problem of buying league-Wide ads)
They solve the problem by benefits of the advertising being easily visible on a team by team basis
By identifying marginal benefits for different teams, the league can change the appropriate changes of cost
Big market teams contribute more league advertising than small market teams
Free riding
attempting to pay less than your marginal benefit for a public good to shift the burden on to others
Typical result
the level of the public good created is lower than the optional level
Consumer surplus-
net value given to consumers due to market activity
Producer surplus
net value given to producers due to market activity
Deadweight loss-
losses in a market that’s don’t have offsetting gain elsewhere
Marginal consumer-
someone who might see some value in your product or service but not at your favorite price point
Why would a monopolist not charge the monopoly price?
Prices should be reduced to sell more tickets, and fill empty seets
Additional profit gained from concessions, and merch
Variable ticket pricing-
pricing tickets to games differently according to expected demand to the game
Dynamic ticket pricing-
djusting ticket prices according to unknown game characteristics such as bad weather, or prices adjusted during the season, all star pitching matchup.
Price discrimination-
-charging consumers different prices based on their willingness to pay
-If a team could perfectly price discriminate, social surplus would be maximized(all goes to producer)
Seat liscence/ two part pricing
Charging a price which consists of of a fixed component and a variable component that varies the amount of product a consumer buys
When do monopolies benefit society?
- monopoly- large firms operate more efficiently than smaller firms
- They arise from natural functioning of the marketplace
