Consider two professional basketball franchises, S and L. The franchises face id
ID: 1184841 • Letter: C
Question
Consider two professional basketball franchises, S and L. The franchises face identical long run costs of winning, but S also has a higher marginal revenue from winning than L.The question is about the relative quality of the teams that each franchise chooses to field in the long run. a.) On the same diagram, with winning percentage on the hhorizontal axis and team revenues and costs on the vertical axis, graph the long run cost function [C(w)] and the long run revenue function [R(W%)] for each team. In your diagram, identify the winning percentage that each team will select in the long run to maximize profits b.)Based on said graph, which team will be more successful in the long run?Explain answer. c.) Based on said graph, which team will make more profit in the long run. Explain answer.Explanation / Answer
a
Winning percentage for a team is defined as games won divided by the total games played.
The author will use the phrase TEAM QUALITY as a synonym for winning percentage W. Also, sometimes W will by the definition above multiplied by 1000
b L will be more successful in the long run because
In economics we typically think about resources as being either fixed or variable.
A variable input is a resource that at any time can be changed in amount.
A fixed input is a resource that for a least some amount of time can not be changed in amount.
The short run is a time frame where some inputs might be variable, but at least one input is fixed in amount.
The long run is that time frame where all inputs can be varied.
c L will make more profit in the long runbecause
The main idea presented is that the more stars there are on a team the higher will be the quality of the team. So, winning is produced by stars. Adding a few stars when the team has none has a great impact on the winning, but at some point adding even more stars will increase winning, but the rate of increase in winning will slow down.
In the long run when the team adds stars the winning percent increase slows down because it is thought that the management function is limited and can not effectively deal with a large amount of stars. So, at some point adding a star does not add as much to the winning percent.
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