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Economics 2152A/B Study Guide - Midterm Guide: Diminishing Returns

Course Code
ECON 2152A/B
Study Guide

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Monday January 26th lecture - First bit of Chapter 5
Competitive Balance - the degree of parity within a league or
- difference between the best and worst teams is small or
- Could be regular turnover of championship team
Do you want your favorite team to win every game, every season?
More predictable the leagues winners/losers, the less attendance it gets
Fans are most interested when their team has a 60-70% chance of winning
Leagues adopt policies to promote competitive balance, such as:
- Salary cap
- Trade approval
- Roster Size
NASCAR – “the claw” (regulations on engines and stuff)
Problems w/ competitive balance
Effect of market size : a league prefers to have teams in larger markets, more profits.
Perfect Parity: a league with 30 teams, each team wins once every 30 years…
If championships are allocated on a per capita basis, then the Yankees win every 9
years, Dodgers every 14 years, Brewers 1 time per 100 years.
Over the last 108 years championship wins: Yankees 27, Dodgers 6, Brewers 0
Why do big market teams gain more from winning than small market teams.
Teams in larger cities enjoy greater increases in fan support from an additional win… - more
gate revenue, more media revenue, and venue revenues.
See graph on notebook
Diminishing Returns
Teams limit their pursuit of star players because of the Law of Diminishing Returns
“There is only one ball”… In the short run, capital is fixed, so additional workers have less
capital to work with and are less productive
Diminishing returns act as a brake on team behavior because they reduce incentive any one
team has to
Standard Deviation
- Is the distance of the typical observation from the sample mean
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