Question

3. Problems and Applications Q3 This chapter discusses companies that are oligopolists in the market for the goods they sell. Many of the same ideas apply to companies that are oligopolists in the market for the inputs they buy. If sellers who are oligopolists try to increase the price of goods they sell, the goal of buyers who are oligopolists is to try to decrease the prices of goods they buy. Major league baseball team owners have an oligopoly in the market for baseball players. The owners' goal is to keep players' salaries . True or False: This goal is difficult to achieve because teams have different budgets. True False Baseball players went on strike in 1994 because they would not accept the salary cap that the owners wanted to impose. True or False: The owners felt the need for a salary cap to help prevent any team from cheating. True False

Answer 1

Answer: 1. Low

2. False

3. False

Explanation:

1. The owners' goal is to keep players' salaries Low.

As the text says, Oligopolist buyers would try to reduce the price of goods that they buy. In the MLB world, the teams are the buyers and the players are the sellers with the salaries being their price. Team owners will therefore try to keep salaries at a low level so that they make more profit.

2. False

This goal is not difficult to achieve due to budget differences but rather because different payers offer varying contributions to the team's game. Some players push the team forward more and hence are able to demand their fair share. This makes it difficult to cap their salaries.

3. False

They only tried to impose the salary cap so that they could reduce the cost of running the basketball teams and not to prevent teams from cheating. The salaries they were paying were high enough that they felt they weren't making enough profit. So they conspired to impose a salary cap so that they could make more profit.