Sports Economics 3123 Sample Final Exam Cheap calculators only Part A Question 1 The demand for Famous Idaho Potato Bowl tickets in Boise is shown below The marginal cost of supplying seats is zero up to Bronco Stadium s capacity of 30 000 Famous Idaho Potato Bowl Ticket Market ticket 200 180 demand 160 140 120 100 80 60 40 20 0 0 5 10 15 20 25 30 35 40 thousands of tickets 45 50 a Suppose the Famous Idaho Potato Bowl manager decides to maximize profit What happens Illustrate your answer b Suppose Idaho Governor Butch Otter decides to control the ticket price according to the principle of perfect competition Then what happens c Suppose that the fixed cost of putting on the Famous Idaho Potato Bowl is 1 5 million and suppose that the gate is the Bowl s only revenue What is the profit in both cases above Comment on the implications of your results for the choice between monopoly and competitive pricing compare your conclusion to the economist s traditional preference for competition 2 Question 2 The chart below plots competitive balance ratios R for National Football League since its founding in 1922 NFL Competitive Balance Ratio R 2 5 competitive balance ratio 2 0 1 5 1 0 0 5 0 0 1920 a 1930 1940 1950 1960 1970 1980 1990 2000 2010 The highest R is 2 29 in 1944 marked as a diamond above 11 teams played 10 games this year the table below shows the final standings City Boston Brooklyn Chicago Chicago Cleveland Detroit Green Bay New York Philadelphia Pittsburgh Washington Team Yankees Dodgers Cardinals Bears Rams Lions Packers Giants Eagles Steelers Redskins Winning percentage 0 200 0 000 0 000 0 667 0 400 0 667 0 800 0 889 0 875 0 000 0 667 Explain how these numbers are used to calculate R do not actually do the calculation Interpret the meaning of the result R 2 29 Compare this outcome with those for other sports leagues b The regression below is estimated for these data R 1 86 0 0046 Time R 2 0 22 38 6 4 94 R is the competitive balance ratio Time equals 0 in 1920 increasing to 88 in 2008 t statistics are in parentheses Plot the estimated regression line on the scatterplot above Use these results to evaluate whether there has been a significant trend in the balance of the NFL be needed for an R 0 Has this outcome ever occurred in the history of c What final standings would American professional sports 3 Question 3 Consider a statistical study of MLB player pay and performance using 1997 8 data There are 329 veteran hitters who played during both years and had at least 100 at bats in 1997 Among these players the mean 1998 salary was 2 00 million median 1 00 standard deviation 2 15 maximum 10 00 and minimum 0 170 All the performance data come from 1997 SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA Regression Residual Total Intercept Walks Strike Outs Stolen Bases Hits Home Runs Errors 0 726 0 527 0 518 1 493 327 df 6 320 326 Coefficients 0 234 0 023 0 011 0 004 0 012 0 088 0 043 SS 796 105 713 750 1509 855 Standard Error 0 211 0 005 0 004 0 009 0 003 0 013 0 017 MS 132 684 2 230 F 59 487 t Stat 1 112 4 468 2 762 0 439 3 920 6 763 2 524 P value 0 267 0 000 0 006 0 661 0 000 0 000 0 012 a Write down the regression equation b Evaluate its goodness of fit Interpret the meaning of the coefficients and their statistical significance c In Moneyball 2004 Michael Lewis claims that Major League Baseball has historically overvalued stolen bases and undervalued walks Discuss whether this regression supports or refutes his theory Question 4 Suppose a college junior expects to earn a salary of 1 million year by declaring himself eligible for the NFL draft If he waits until after his senior year he expects his salary to be 1 1 million In both cases he will sign a 2 year contract and plans to retire when this contract expires His personal discount rate is 5 a Write out in detail his cash flow options and calculate the present discounted values of his options Should he stay for his senior year or not Explain b Would his decision change if he could expect a 3 year contract c Would his decision for the 2 ear contract change if his personal discount rate is 20 4 Part B Mark the best answer 1 a b c d e If the Famous Idaho Potato Bowl tickets are 80 Part A Question 1 the elasticity of demand is 0 67 1 33 2 2 67 none of the above a b c d e Compared to the competitive outcome monopolies usually charge lower prices and sell more output charge higher prices and sell more output charge lower prices and sell less output charge higher prices and sell less output charge the same prices and sell the same output 2 3 The Tampa Bay Rays are a small market team while the Tampa Bay Buccaneers are not because a the Rays draw fewer fans b Tampa is smaller than St Petersburg c the Rays rely more on local not national broadcasts for their media revenue d the Rays have used up all of their tax depreciation allowances e the Rays have to share more of their revenue with other teams 4 The price of a Colin Kaepernick jersey increases by 10 while the quantity sold drops by 5 This indicates that demand for jerseys is a perfectly elastic b elastic c unitary d inelastic e perfectly inelastic 5 a b c d e Over the course of a single season most of a professional team s costs are shared by all teams in the league fixed variable marginal zero a b c d e By depreciating assets including the players themselves teams owners try to create positive actual profits but negative tax profits negative actual profits but positive tax profits tax profits that are greater than actual profits a balanced budget vertical integration a b c d e The Hustler s Handbook was written by George Preston Marshall Al Davis Marvin Miller Juan Antonio Samaranch none of the above 6 7 5 8 This regression below is estimated on MLB teams for the 2002 season t statistics in parentheses Rev 14 5 219Win R 2 0 26 0 38 2 94 Rev MLB team revenue in millions of dollars Win team winning percentage We can conclude that a the estimated intercept is not statistically significant b a team that loses all of its games will earn about 15 million c a team that wins all of its games will earn about 234 million d Win has a statistically significant effect on Rev e all of the above are true 9 a b c d e Charging …