Deck 9: The Economics of Professional Sports: What Is the Real Score

Question 1

Which of the following statements is false?

A)Anti-trust laws make most cartels illegal in the U.S
B)Formation of a cartel ensures that each firm will earn greater profits than without a cartel
C)Cartels maximize joint profits not individual firm profits
D)Professional sports leagues insure the stability of teams by cooperating through cartel arrangements
E)Cartels are difficult to maintain when cheating is possible

Answer 1

B

Question 2

Why does a monopsony's marginal cost of labor (MCL)curve lie above the market supply of labor curve? Because the monopsony

A)Must raise the wage it pays all employees in order to attract and hire additional workers
B)Must pay higher wages to only the last workers hired in order to attract and hire additional workers
C)Faces the market demand and marginal revenue curves
D)Must lower the wage it pays all employees in order to maintain profitability
E)Has such high labor costs relative to the supply of labor

Answer 2

A

Question 3

The additional cost incurred as a result of hiring an additional worker is the firm's

A)Total cost of labor
B)Marginal cost of labor
C)Average cost of labor
D)Labor cost
E)Human capital cost of labor

Answer 3

B

Question 4

Under which of the following conditions will a monopsony hire an additional worker? When

A)MCL > MRP
B)MCL < MRP
C)MRP = D
D)MC = MR
E)D > S

Question 5

The difference between a worker's contribution to the firm's receipts and the wage is

A)Monopsony profit
B)Monopoly profit
C)Cartel profit
D)Economic profit
E)Marginal revenue profit

Question 6

Which of the following best characterizes a cartel arrangement?

A)Open competition
B)Shared competition
C)Monopsony
D)Shared monopoly
E)Oligopoly

Question 7

In a product market,

A)Producers sell goods and services
B)Consumers buy goods and services
C)Final goods and services are exchanged
D)All of the above
E)None of the above

Question 8

If a firm's workers add $1,000 to the firm's receipts and total wages equal $500,then monopsonistic profit equals

A)$500
B)$1,000
C)$1,500
D)$500,000
E)A number unable to be determined with the information given

Question 9

Firms that coordinate their actions to maximize joint profits are said to have formed a(n)

A)Monopsony
B)Cartel
C)Product market
D)Oligopoly
E)Economic treaty

Question 10

Which of the following is NOT necessary for a successful cartel? Members must

A)Produce most of the industry's output
B)Produce a homogeneous output
C)Produce heterogeneous outputs
D)Be able to divide the market
E)Have a way to prevent cheating

Question 11

Which of the following sports leagues can be considered a cartel?

A)The National Football League (NFL)
B)The National Hockey League (NHL)
C)The National Basketball Association (NBA)
D)(a)and (b)
E)All of the above

Question 12

Which of the following conditions can give rise to a monopsony employer?

A)Mobile workers with limited skills
B)Legal protection from anti-trust laws and a mobile workforce
C)Immobile workers with highly specialized skills
D)A cartel agreement that results in raising joint profits
E)A merger between two unrelated firms

Question 13

In a resource market,

A)Buyers and sellers exchange goods and services
B)Resourceful buyers find goods that are otherwise unavailable
C)Buyers and sellers exchange factors of production
D)Firm managers exchange production techniques and ideas
E)Workers exchange their labor for the firm's output

Question 14

To maximize profit,a monopsony will hire workers up to the point where

A)MC = MR
B)D = S
C)MCL = MRP
D)MCL = P
E)MR = P

Question 15

A resource market with only one buyer of a factor of production is called a(n)

A)Imperfect monopoly
B)Monopoly
C)Competitive market
D)Monopsony
E)Cartel

Question 16

A monopsony is a market with only one

A)Buyer
B)Employer
C)Product
D)All of the above
E)a)and b)

Question 17

To maximize joint profits,a cartel will set the market price and output such that

A)Each firm's marginal revenue equals its marginal cost
B)The market's marginal revenue equals the market's marginal cost
C)Each firm's demand schedule is equal to the market marginal cost
D)The market's marginal revenue is equal to each firm's marginal cost
E)None of the above

Question 18

In a product market with a cartel,prices will be _____ and output will be _____ than in a competitive market.

A)Higher; lower
B)Lower; higher
C)Higher; higher
D)Lower; lower
E)Both price and quantity will be the same

Question 19

A monopsony will hire ______ workers at a _____ wage than an employer in a competitive labor market.

A)More; lower
B)More; higher
C)Fewer; higher
D)Fewer; lower
E)The same number of; higher

Question 20

Professional sports clubs differ from most other business firms in their

A)Organizational structure and relationship with employees
B)Location and emphasis on the competitive spirit
C)Ownership and profitability
D)Legal status as corporations and limited tax liability
E)Ability to operate in both the product and resource market

Question 21

The relatively high salaries paid to professional athletes

Question 22

The Following Questions Refer to the graph below.
What wage will maximize this firm's economic profit?

A)$500
B)$800
C)$1,000
D)Less than $1,000 but greater than $0
E)$0

Question 23

The average baseball player earns a salary greater than the average college professor because

A)Baseball players contribute more to society's general well-being
B)College professors contribute less to their employer's revenues than baseball players
C)Colleges are better able to enforce their monopsonistic market positions
D)The market for baseball players is more competitive
E)Colleges are owned by the state

Question 24

Why does the average professional baseball player earn more than the average doctor?

A)The baseball player has a lower MCL
B)The doctor has a higher MRP
C)The baseball player has a higher MRP
D)There are more professional baseball players than doctors
E)The demand for baseball is higher than the demand for medical care

Question 25

Which of the following releases professional athletes from some of the monopsony powers of the sports leagues?

A)Player drafts
B)Long-term contracts
C)Free agency
D)Expanded playing seasons
E)Minimum wage laws

Question 26

The Following Questions Refer to the graph below.
This graph represents the labor market for a(n)

A)Monopolist
B)Competitive firm
C)Product market cartel
D)Monopsonist
E)Oligopoly

Question 27

The Following Questions Refer to the graph below.
How many workers will this firm hire?

A)0
B)L₁
C)L₂
D)L₃
E)More than L₃

Question 28

The Following Questions Refer to the graph below.
If this labor market is competitive,what wage will workers be paid?

A)$0
B)$500
C)$800
D)$1,000
E)More than $1,000

Question 29

One way in which professional sports leagues enforce the monopsonistic employment of players is through

A)Free agency
B)Open arbitration
C)League expansion
D)Salary caps
E)A talent agency

Question 30

The Following Questions Refer to the graph below.
How many workers will this firm hire?

A)0
B)10
C)12
D)15
E)More than 15

Question 31

The Following Questions Refer to the graph below.
What wage will maximize this firm's economic profit?

A)W₁
B)W₂
C)W₃
D)W₄
E)A wage above W₄

Question 32

If a worker adds 20 units to a firm's total output,the output is sold for $2 per unit,and the worker is paid $100,then the worker's marginal revenue product is

A)20
B)40
C)60
D)100
E)200

Question 33

Which of the following is a work stoppage initiated by management?

A)Lockout
B)Strike
C)Mediation
D)Arbitration
E)Monopsony

Question 34

The Following Questions Refer to the graph below.
This graph represents the labor market for a(n)

A)Monopolist
B)Competitive firm
C)Product market cartel
D)Monopsonist
E)Oligopoly

Question 35

Which of the following is a work stoppage initiated by workers?

A)Lockout
B)Strike
C)Mediation
D)Arbitration
E)Monopsony

Question 36

The Following Questions Refer to the graph below.
If this labor market is competitive,how many workers will be hired?

A)0
B)L₁
C)L₂
D)L₃
E)More than L₃

Question 37

Which of the following statements is NOT true?

A)Even though the essence of sports is competition,professional sports clubs cooperate with each other in the marketplace
B)Professional sports leagues are economic cartels
C)From an economic perspective,the NFL,NHL,NBA and MLB are competitive markets
D)Professional sports leagues have monopsony power in the resource market
E)Owners of professional sports clubs attempt to maximize their joint profits by joining leagues

Question 38

A labor union

A)Bargains on behalf of all workers
B)Conducts lock-outs as a bargaining tool
C)Is concerned with salaries rather than work conditions
D)Does all of the above
E)Does none of the above

Question 39

The Following Questions Refer to the graph below.
If this labor market is competitive,what wage will workers be paid?

A)W₁
B)W₂
C)W₃
D)W₄
E)A wage above W₄

Question 40

The Following Questions Refer to the graph below.
If this labor market is competitive,how many workers will be hired?

A)0
B)10
C)12
D)15
E)More than 15

Question 41

When a professional sports league sells broadcast rights for the entire league,

A)The selling price will be higher than the price that would be charged if each team individually sold broadcast rights
B)Fewer games will be broadcast than would be if each team individually sold broadcast rights
C)Joint profits among all teams in the league can be maximized
D)(a)and (b)
E)All of the above

Question 42

A professional sports league can maximize the revenue it generates from selling broadcast rights by playing enough games such that

A)Demand equals supply
B)Total revenue equals total costs
C)Marginal revenue equals marginal costs
D)Marginal revenue equals total costs
E)Total revenue equals marginal costs

Question 43

To maximize joint profits,a cartel will produce output up to the point where

A)MR = MC
B)TR = TC
C)MR = TC
D)TR = MC
E)P = MR

Question 44

Which of the following factors helps professional sports teams to exercise monopsony power over the players that they hire?

A)Player drafts
B)Exclusive contracts that limit free agency
C)The specialized skills of players
D)All of the above
E)None of the above

Question 45

A profit maximizing sports club will hire players up to the point where the

A)Demand of labor equals marginal revenue product of labor
B)Supply of labor equals the marginal cost of labor
C)Marginal revenue product of labor equals the marginal cost of labor
D)Marginal cost of labor equals the wage rate
E)Wage equals the quantity of labor available

Question 46

For a cartel,the

A)Demand curve is also the marginal revenue curve
B)Marginal revenue curve lies above the demand curve
C)Marginal revenue curve lies below the demand curve
D)Marginal cost curve lies below the demand curve at all points
E)Supply curve lies above the demand curve at all points

Question 47

The additional revenue that a player generates for his employing team is called

A)Total player revenue
B)Marginal revenue product
C)Marginal product
D)Marginal revenue
E)Monopsonistic revenue product

Question 48

Professional baseball enjoys an exemption from ________ laws that make cartels illegal in most other industries.

A)Minimum wage
B)Antitrust
C)Common
D)Labor
E)Anti-competition

Question 49

Which of the following factors is NOT necessary to form a successful cartel?

A)Members must be responsible for most of the industry's output
B)Member firms should produce homogeneous output
C)Members must be located in close proximity to each other
D)The cartel must be able to divide the marketplace between member firms
E)There must be a mechanism to prevent cheating by member firms

Question 50

A cartel is more likely to be successful if

A)Cartel members produce most of the output in the market
B)Market output is heterogeneous
C)Members overlap in their control of market territories
D)All of the above
E)None of the above

Question 51

In the resource market,professional sports clubs must face the

A)Upward sloping market supply of labor curve
B)Downward sloping market supply of labor curve
C)Horizontal marginal cost of labor curve
D)Industry-level demand for labor curve
E)Upward sloping marginal revenue product of labor curve

Question 52

From an economic perspective,which of the following is the best reason for a city to attract a professional sports team?

A)A professional sports team generates publicity and creates public relations opportunities for businesses located in the city
B)A professional sports team generates a significant number of new jobs for the community
C)Professional sports teams pay large sums of money in city taxes
D)A new team will increase the demand for other entertainment related activities within the local community
E)Sports enhance the tax base of large cities by generating significant numbers of new professional jobs

Question 53

Which of the following statements is true?

A)From an economic perspective,most professional athletes do not earn their pay
B)Salaries in any industry

Question 54

Over the past twenty years,free agency in professional sports has

A)Increased the monopsonistic power of leagues and caused salaries to stagnate
B)Reduced the bargaining power of players and raised owner profits
C)Reduced the monopsonistic power of leagues and caused salaries to rise
D)Improved the economic position of owners by increasing the competition for good players
E)Had little effect on the sports industry

Question 55

Which of the following factors reduces the monopsony power of professional sports teams in the employment of players?

A)Player drafts
B)The reserve clause
C)The long-term employment contracts
D)Cartel agreements between teams
E)Free agency

Question 56

A monopsony exists whenever there

A)Are many buyers in a market
B)Is only one buyer in a market
C)Is only one seller in a market
D)Are many sellers in a market
E)Are no barriers to enter or leave a market

Question 57

Which of the following statements is FALSE?

A)Even though professional athletes may earn millions of dollars each year,it is possible for them to be exploited by their employers
B)From an economic perspective,professional athletes do not earn their pay
C)The economic impact of a professional sports team on their home community is relatively small
D)Free agency has caused the salaries of professional athletes to rise over time
E)By limiting expansion,professional sports leagues ensure greater profits for the existing teams

Question 58

A monopsony will continue to hire workers up to the point where the

A)Marginal cost of labor is equal to total revenue
B)Total cost of labor is equal to the marginal revenue product of labor
C)Marginal cost of labor is equal to the marginal revenue product of labor
D)Marginal profit of production equals the total cost of production
E)Marginal revenue product of labor is maximized

Question 59

In a monopsony,the difference between the marginal revenue product of labor and the wage rate is known as

A)Joint profit
B)Monopsonistic profit
C)Monopsonistic cost
D)Cartel profit
E)Competitive returns

Question 60

Today,the primary source of revenue for most major league clubs is

A)Ticket sales
B)Concession sales
C)Merchandising
D)Broadcast rights
E)Parking

Question 61

Antitrust laws make most cartels legal forms of business in the United States.

Question 62

If a cartel discovers that its marginal cost is greater than marginal revenue,the cartel should

A)Increase production
B)Shut down
C)Reduce production
D)Hire fewer workers
E)Increase the number of cartel members

Question 63

When professional sports leagues seek to achieve parity,they are seeking

A)Fair wages
B)Competitive balance
C)Teams with an athletic advantage
D)Equal marginal revenue product across teams
E)Homogeneous views on league policies

Question 64

Unlike other workers,it is difficult to measure the productivity of a professional athletE.

Question 65

A cartel exists when firms coordinate their actions in a manner to maximize joint profits.

Question 66

According to economist Andrew Zimbalist,the Jacksonville Jaguars expansion football team has an economic impact on the local area comparable to a

A)New department store
B)Major hurricane
C)Large military installation
D)State university
E)City park

Question 67

When a player is drafted by a team,that team acquires the "property rights" to the player's employment contract.

Question 68

If a cartel discovers that its marginal revenue is greater than its marginal cost of production,the cartel should

A)Increase production
B)Shut down
C)Reduce production
D)Hire fewer workers
E)Increase the number of cartel members

Question 69

Professional sports clubs are businesses operated for profit.

Question 70

Which of the following is the best economic reason for taxpayers to support the development of facilities for professional sports teams?

A)The intangible spillover benefits of the team,such as civic pride
B)The number of jobs that will be created by the team
C)The economic impact on the city due to ticket sales
D)The new taxes that will be paid by the players and coaches
E)The tourists that will visit town while attending home games

Question 71

Tickets and broadcast rights to baseball games are bought and sold in the product market.

Question 72

All professional sports clubs must operate independently to guarantee a competitive economic environment.

Question 73

Which of the following contributes to monopsony power in professional sports?

A)Player mobility
B)Free agency
C)Player drafts
D)All of the above
E)None of the above

Question 74

Approximately what percent of funding for stadium construction and renovation has come from public sources in recent years?

A)1
B)about 10
C)less than 20
D)over 50
E)nearly 100

Question 75

The primary benefits of a professional sports team are

A)Massive economic development
B)Privately funded
C)Salaries and wages
D)Intangible
E)All of the above

Question 76

Professional sports leagues,like the NFL,were formed by teams in an effort to earn greater profits and to ensure survival.

Question 77

In football,new players can sell their services to the highest bidding NFL team.

Question 78

The National Basketball Association is a cartel.

Question 79

Teams that belong to professional sports leagues are

A)Cartel members
B)In business to make a profit
C)Monopsony employers
D)All of the above
E)None of the above

Question 80

When does a firm experience monopsony profits?

A)Only when the marginal cost of labor is greater than the marginal revenue product of labor
B)When the total revenue exceeds the marginal cost of production
C)Only when the marginal revenue product of labor exceeds the marginal cost of labor
D)Only when the firm is a member of a cartel
E)When the firm is a monopoly in its product market