Background information for Q3: The Madison Gaming League has twenty (20) perfect

Question

Background information for Q3: The Madison Gaming League has twenty (20) perfectly competitive franchises, which can sell broadcasting rights locally at the price of $2/ match.

Author's Note: If you've underestimated this market (as l used to), here's a window The following equations describe the production function and the marginal product of labor for each franchise: Q-100"L-L2 MPL 100 -2"L where Q is the number of matches aired weekly, L is the number of gamers hired by a franchise, and MPL is the marginal product of labor. Assume each franchise pays its gamers a weekly wage of W, and that the market for gamer labor is also perfect competitive. 1.5 pts D

Question 18 Q3 i)

What is each franchise’s labor demand curve as a function of the weekly wage, W?

LD = 200 – 2*W

LD = 100 – ½*W

LD = 50 – ¼*W

LD = 50 – 2*W

Q3 - ii)

What is the league’s labor demand curve? [Remember to add horizontally!]

LDMarket = 4000 – 40*W

LDMarket = 2000 – 10*W

LDMarket = 1000 – 5*W

LDMarket = 1000 – 40*W

Q3 - iii)

Both the franchise and the league demand curves for labor slope down because of:

All of the above.

Q3 - iv)

Madison has 200 gamers who supply their labor perfectly inelastically.

Equilibrium wages in the Madison gamer market is:

$400 / week

Q3 - v)

Each franchise hires ________ gamers and makes _______ in weekly profits. [Remember that franchise revenues stem from the sale of broadcast rights for matches!].

10 ; $0

Q3 - vi)

Recalling the profit maximizing condition for a competitive firm, we can use our derivation of the franchise’s labor demand curve to express the marginal cost of production for each franchise as which of the following?

None of the above

Q3 - v)

Gamers unionize and now act as a cartel in supplying their labor to the franchises (after all, given your answers to the above questions, carpel tunnel is likely to be a problem in this market before too long !! ). This unionization will decrease which of the following?

I. Equilibrium wages in the gamer market

II. Marginal costs of production for the franchises

III. Franchise profits

IV. Broadcasting rights prices

LD = 200 – 2*W

Explanation / Answer

1) In the perfectly competitive market,labor is hired until its MFC=MRP

where MFC=w=2(100-2L) and MRP=PxMPL

Given w=2 and MPL=100-2L

we have,w=2(100-2L)

=100-2L=(1/2)w

2L=100-1/2w

Ld=50-1/4w option (C)

2) Given totol number of firms = 20

Therefore league's labor demand = 20 x 50-1/4w

= 1000-5w option (C)

3) The franchise and league demand curve slope downwards because of option (A) diminishing marginal product of gamers.

4) Labor demand = 1000-5w, Lanor supply = 200

At equilibrium D=S

Therefore,1000-5w=200

or w = 800/5 = 160 per week option (B)

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