Sports Economics 3123 Sample First Midterm Exam Cheap calculators only Part A Question 1 40 points The demand hypothetical for Sugar Bowl tickets is shown below The marginal cost of supplying seats is zero up to the 70 000 capacity approximate of the Superdome Sugar Bowl Ticket Market a Suppose that Sugar Bowl management decides that the ticket price will be 100 What happens Illustrate your answer b Suppose instead that management decides to maximize profit Then what happens Illustrate your answer c Suppose Governor Bobby Jindal decides to control the ticket price according to the principles of perfect competition Then what happens d Which of these pricing schemes do economists prefer in terms of social value consumer plus producer surplus Explain How much deadweight loss is associated with b Question 2 40 points Consider the 30 Major League Baseball teams in 2008 The graph below plots winning percentage against team revenue The regression estimate is shown with t statistics in parentheses 2 400 team revenue millions of 350 New York Yankees 300 250 200 150 100 Rev 62 9 262 Win R2 0 147 1 04 2 19 50 winning percentage 0 0 000 0 200 0 400 0 600 0 800 1 000 a Explain the theory behind this equation Give an interpretation of the meaning and statistical importance of the estimated coefficients Explain why the Yankees are so far off the regression line b The table below shows Excel output again MLB team revenue is the dependent variable Metropolitan population is measured in millions SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations intercept winning percentage metropolitan population 0 796 0 633 0 606 29 3 30 Coefficients 126 4 50 7 7 9 Standard Error 41 6 87 3 1 3 t Stat 3 04 0 58 5 98 P value 0 01 0 57 0 00 Write down the regression equation used here Give an interpretation of the meaning of the estimated coefficients c Give an interpretation of the statistical importance of the estimated coefficients in the table above d Compare and evaluate these two models of baseball revenues Explain how the second model corrects for the Yankees effect in the first model 3 Part B Mark the best answer 40 points 1 Wayne Huizenga a invented a way sports franchises could make money by losing money on their tax returns b broke the color line in the American League by signing Larry Doby c purchased the Florida Marlins with the profits he made from Blockbuster Video d suffered financial loses in order to build the Florida Marlins into a World Series winner e did all of the above 2 Bill Veeck a invented a way sports franchises could make money by losing money on their tax returns b titled his autobiography the Hustler s Handbook c introduced such baseball marketing gimmicks as the exploding scoreboard and bat day d broke the color line in the American League by signing Larry Doby e did all of the above 3 Silvio Berlusconi a invented a way sports franchises could make money by losing money on their tax returns b titled his autobiography the Hustler s Handbook c laid the foundation of the NFL s successful unified TV policy d used his ownership of the AC Milan soccer team to launch his career in Italian politics e did none of the above 4 The Minnesota Twins are a small market team while the Minnesota Vikings are not because a they sell fewer tickets per season b they rely more local not national broadcasts for their media revenue c they have a much older stadium than the Vikings do d they have to share their luxury box revenue with other teams e they have used up most of their tax depreciation allowances 5 Based on the multiple regression in Part A Question 2 b we can conclude that a the overall goodness of fit of this regression is excellent b many teams are on the verge bankruptcy c the winning percentage variable has no statistically significant effect on team revenue d the metropolitan population variable has no statistically significant effect on team revenue e none of the above is true 6 If the Sugar Bowl sets individual tickets at 100 in Part A Question 1 the elasticity of demand is a zero b 0 25 c 0 33 d 1 e none of the above 7 The price of a Ray Lewis jersey increases by 25 while the quantity sold drops by 25 This indicates that demand for jerseys is a perfectly elastic b elastic c unitary d inelastic e perfectly inelastic 8 If the Sugar Bowl were able to practice first degree or perfect price discrimination its revenue would be a 15 75 million b 16 million c 22 75 million d 25 million e none of the above is true 4 9 The difference between first and third degree price discrimination is that a third degree is more profitable than the classic monopoly while first degree is not b with first degree the seller can divide the buyers into separate markets while with third degree the seller offers quantity discounts c with third degree the seller can divide the buyers into separate markets while with first degree the seller offers quantity discounts d with first degree the seller captures the entire consumer surplus while third degree does not e with third degree the seller makes a take it or leave it offer to buyers while first degree does not 10 If the Detroit Pistons raise their ticket prices but see no change in their ticket revenues we can conclude that a the supply of tickets is too low b the demand for tickets is too high c the demand for tickets is price inelastic d the demand for tickets has unitary elasticity e the demand for tickets is price elastic 11 This regression below is estimated on MLB teams for the 2002 season t statistics in parentheses Rev 14 5 219 Win 0 38 2 94 Rev MLB team revenue in millions of dollars Win team winning percentage R2 0 26 We can conclude that a the overall goodness of fit of this regression is excellent b the estimated intercept is statistically significant c a team that wins half of its games will earn about 125 million d the estimated Win coefficient is not statistically significant e none of the above is true 12 Given that attendance at minor league baseball games substitutes for attendance at major league games a fall in minor league ticket prices will a decrease major league game attendance because the major league supply curve shifts to the left b decrease major league game attendance because the major league demand curve shifts to the left c have no effect on major league game attendance because supply and demand curves shift in opposite directions d increase major league game attendance because lower