ECON 406 Test

question

From what sources do sport franchises typically earn revenue

answer

Gate revenue (ticket sales), broadcasting rights, licensing income, stadium related revenue

question

Economic Profit

answer

pi = TR - TC TR = P*Q

question

Normal Profit

answer

entrepeneur's salary

question

economic profit (book profit)

answer

the objective, pi = TR - TC (*TC includes normal profit, interest, depreciation, etc.)

question

What factors complicate the evaluation of a sports franchise's financial performance?

answer

economic profit is deceiving because TC includes: all costs of production, even interest, & depreciation.

these are highly manipulable

A team can have positive operating profit but a negative book profit, deceptively struggling.

question

Creative Accounting in Sports

answer

Accounting for player skill depreciation & facilities depreciation can help avoid significant tax costs

question

Elastic Demand

answer

demand in which changes in price have large effects on the amount demanded

question

inelastic demand

answer

demand in which changes in price have little or no effect on the amount demanded

question

unit elasticity

answer

product demand for which relative price changes and changes in quantity demanded are equal

question

vertical integration

answer

the merger of a firm that produces intermediate inputs with a firm that produces finished products.

question

Vertical Integration (in Sports)

answer

Major and Minor League Baseball

question

Can the integration of two firms with monopoly power benefit consumers?

answer

Consumers end up potentially paying lower prices but with more output.

Example- Having the major and minor leagues under one banner/broadcasting entity. consolidation.

question

price discrimination

answer

the action of selling the same product at different prices to different buyers, in order to maximize sales and profits.

question

Given two separable markets for the same good (e.g. sports tickets), how does a sports franchise decide how much to sell and what price to change in each market?

answer

Senior citizen tickets vs other tickets

question

How does a franchise decide to sell and what price to charge in each market?

answer

Senior citizens would get the discount because they have a higher degree of sensitivity to price changes than younger individuals. As far as choosing what specific demographic it depends on the sports market/fanbase itself.

question

dominant strategy

answer

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

question

price elasticity of demand

answer

a measure of the sensitivity of demand to changes in price

%change in QP / % change in P

question

marginal revenue

answer

change in TR/change in Q

question

fixed cost

answer

Costs that do not vary with the quantity of output produced.

ex. player, management talent (contracted workers)

question

absolute level of quality

answer

clearly different levels of quality, as in the difference between minor and major league sports

question

subchapter s

answer

for the sole owner of a corporation: income gets taxed at personal rate, not corporate.

higher personal rates can lead to deductions at higher rates, saving the tax bill

question

club

answer

collection of individuals acting as semi-autonomous units that work together to maximizer the consumption possibilities of the group.

1 of 22

question

From what sources do sport franchises typically earn revenue

answer

Gate revenue (ticket sales), broadcasting rights, licensing income, stadium related revenue

question

Economic Profit

answer

pi = TR - TC TR = P*Q

question

Normal Profit

answer

entrepeneur's salary

question

economic profit (book profit)

answer

the objective, pi = TR - TC (*TC includes normal profit, interest, depreciation, etc.)

question

What factors complicate the evaluation of a sports franchise's financial performance?

answer

question

Creative Accounting in Sports

answer

Accounting for player skill depreciation & facilities depreciation can help avoid significant tax costs

question

Elastic Demand

answer

demand in which changes in price have large effects on the amount demanded

question

inelastic demand

answer

demand in which changes in price have little or no effect on the amount demanded

question

unit elasticity

answer

product demand for which relative price changes and changes in quantity demanded are equal

question

vertical integration

answer

the merger of a firm that produces intermediate inputs with a firm that produces finished products.

question

Vertical Integration (in Sports)

answer

Major and Minor League Baseball

question

Can the integration of two firms with monopoly power benefit consumers?

answer

Consumers end up potentially paying lower prices but with more output.

Example- Having the major and minor leagues under one banner/broadcasting entity. consolidation.

question

price discrimination

answer

the action of selling the same product at different prices to different buyers, in order to maximize sales and profits.

question

Given two separable markets for the same good (e.g. sports tickets), how does a sports franchise decide how much to sell and what price to change in each market?

answer

Senior citizen tickets vs other tickets

question

How does a franchise decide to sell and what price to charge in each market?

answer

question

dominant strategy

answer

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

question

price elasticity of demand

answer

a measure of the sensitivity of demand to changes in price

%change in QP / % change in P

question

marginal revenue

answer

change in TR/change in Q

question

fixed cost

answer

Costs that do not vary with the quantity of output produced.

ex. player, management talent (contracted workers)

question

absolute level of quality

answer

clearly different levels of quality, as in the difference between minor and major league sports

question

subchapter s

answer

for the sole owner of a corporation: income gets taxed at personal rate, not corporate.

higher personal rates can lead to deductions at higher rates, saving the tax bill

question

club

answer

collection of individuals acting as semi-autonomous units that work together to maximizer the consumption possibilities of the group.

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ECON 406 Test

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