There are 2 assignments. I have attached a file from question 5 you need to do this also.

1st assignment

Sports Economics

Homework #1

1. (5 Points) A consulting firm estimates the demand by local businesses for

attendance at a pro sports team's games:

PB = $140 – 4AB

where PB is the ticket price paid by businesses, measured in dollars, and AB is

their attendance measured in thousands of fans.

a. Draw this attendance demand function with the traditional P on the

vertical axis, and Q/A on the horizontal axis.

b. Using this demand function, find the total revenue function. What

is the shape of the total revenue function? What is the highest

possible total revenue that the team can hope to collect? At what

level of attendance? At what price?

c. Using this demand function and your answer to part (b), what is

the elasticity of demand at the revenue maximizing attendance

level (hint: if your calculations are correct, there is only one

answer you should get for this0?

d. Using your answers to a-c, if capacity at the team's stadium is

25,000 seats, should the team owner fill the stands with business

buyers? Why or why not?

2. (5 Points) The same consulting firm also estimates that the demand by families

for attendance at the same games and the same seat-types is as follows:

PF = $80 – (2/3)AF

where PF is the price of a ticket for individual family members, measured in

dollars, and AF is the attendance by individual family members, measured in

thousands.

a. Explain, comparing the elasticity of demand found in 1C with that

found using the above equation, why individual family members

will be charged a different price than business buyers for the same

game and seat-type. What is the ratio of business buyer to family

member price (PB/PF) if the team owner cares about the bottom

line (you will need to calculate PF in much the same way as you

calculated PB in question 1. Is this price discrimination?

b. Calculate both the business buyers consumer surplus and family

members consumer surplus given your answers to questions 1 and

2a. What does this number represent?

3. (2.5 Points) The NFL’s Houston Oilers left Texas to become the “Tennessee

Oilers” for the 1997 season. They changed their name to the Tennessee Titans

and moved into their new Adelphia Stadium for the 1999 season. Interestingly,

their lowest-priced individual tickets were priced at $12 while their lowest-priced

season ticket cost $250. Given that there are only 8 home games, why didn’t fans

just buy individual tickets rather than season tickets? Is this price discrimination

or not? Explain.

4. (5 Points)

a. Using MLB ticket price (on blackboard) and attendance data (at

http://rodneyfort.com/PHSportsEcon/Common/OtherData/DataDirectory.h

tml), produce a spreadsheet for the year 2001 with the following

columns: team name, attendance, and ticket price. Scale attendance in

100,000 for charting purposes. Sort the data by attendance in ascending

order. Produce a scatter chart with attendance on the x-axis and ticket

prices on the y-axis (include the scatter chart with your homework). Do

your results support or reject the theory of demand? Explain. What other

variables would you like to have to more accurately depict demand?

b. Using MLB ticket price and attendance data (from the same sources as

part a), produce a spreadsheet for the San Diego Padres, 1998-2003, with

the following columns: year, attendance, ticket price. Scale attendance in

100,000 for charting purposes. Sort the data by attendance in ascending

order. Produce a scatter chart with attendance on the x-axis and the two

ticket prices on the y-axis (include scatter chart with your homework). Do

your results support or reject the theory of demand? Explain. If you

include 2004 and 2005 to the 1998-2003 data does your answer change?

Why or why not?

5. (5 Points)

a. The Yankees typically dominate the top of the payroll distribution in

MLB, while the Expos/Nationals are usually towards the bottom. On

blackboard, I have given you two spreadsheets, one for each of these

teams, with the following columns: year, team payroll, ticket price, real

team payroll, and real ticket price (real means inflation adjusted). Adjust

payrolls to $millions for charting by dividing each payroll by

1,000,000. Sort the data by team payroll in ascending order, and for each

team, produce a separate scatter chart with team payroll on the x-axis and

ticket prices on the y-axis to include with your homework. For these

unadjusted dollar values, calculate the correlation coefficients between

payroll and ticket price for each of the three teams (in a blank cell type

=CORREL(__,__) where for each __ you select the column with payroll

and the column for ticket prices respectively).

b. Now sort the data by real team payroll in ascending order. For each team,

produce a separate scatter chart with real team payroll on the x-axis and

real ticket prices on the y-axis to include with your homework. Calculate

the correlation coefficients between real payroll and real ticket price for

each of the three teams.

c. What conclusions can you draw from this regarding the relationship

between payrolls and ticket prices? What would you say to the fan who

complains that ticket prices are too expensive because team payrolls are

out of control?

6. (2.5 Points) Consider Coke and Pepsi’s decision of whether to advertise during

the Super Bowl or not. If neither company advertises during the Super Bowl, the

two companies split the market and earn $50 million each. If they both advertise,

they again split the market, but profits are lower by $10 million since each

company must bear the cost of advertising. Yet if one company advertises while

the other does not, the one that advertises attracts customers from the other. In this

case, the company that advertises earns $60 million while the company that does

not advertise earns only $30 million. Given this information, what is each

company’s dominant strategy? What level of profits will following this strategy

lead to for both firms? Will both firms advertise or not? What would have to

happen to change your answer?

2nd assignment

Franchise Analysis Description:

ï‚· The franchise analysis project will require you to pick one professional sports franchise. This franchise could be from any of the major sports,

ï‚· Your final paper will then be an economic analysis of this franchise including:

ï‚§ Section 1: An introduction covering your chosen franchise, perhaps a little history of the franchise and a preview of the rest of the paper

ï‚§ Section 2: The labor market and your franchise. This is where you talk about your franchise’s payroll over time, the composition of their payroll (balanced or unbalanced, etc), how they have chosen to structure player contracts (long term contracts, incentive laden contracts, etc), any discrimination issues, free agency issues, etc.

ï‚§ Section 3: Industrial Organization topics for your franchise. This is where you discuss their winning %s over time, the relations between winning and payroll for the franchise, ticket pricing, advertising, etc.

ï‚§ Section 4: The Government and your franchise. This is where you would discuss public funding for stadiums, taxes, subsidies, etc.

ï‚§ Section 5: The conclusion, where you sum up your findings, and discuss any potential issues on the horizon for your franchise.

o Each of the above sections should clearly address where the franchise has been on the issue historically, where it is currently and where it is headed. For example, in section 3 you may want to address the franchise’s payroll relative to its competition historically, currently and going forward.

o Note that the topics listed above are examples, and you should not use this as a checklist of things to cover.

o I would recommend graphs when applicable as a graph can convey a lot of information (for example plotting payroll over time is a far better way to get this information across than to take a page of discussion on the topic).

Subject | Business |

Due By (Pacific Time) | 06/30/2014 05:00 pm |

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