Question

1. For any given price, how would the following changes impact a team’s revenue?

a. Increase in the size of the market

b. Building a new stadium

c. Decline in the quality of the team’s roster

2. For a typical firm, what is the shape of the marginal cost curve? Why does it have this shape?

Answer 1

1.A.An increase in the size of market increases the quantity demanded and hence increases revenue.

2.Building of a new stadium provides more opportunity for teams.The number of matches played can increases which will increase revenue.

3.Decline in quality will reduce demand and hence revenue.

2.MC is U shaped.

This is because initially with increase in production a firm experiences economies of scale.In this phase the total cost falls and hence MC falls.

As production rises eventually the firm experiences diseconomies of scale.The total cost rises and hence MC also rises.

Thus,MC is U shaped.