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3. (3pts. total) Suppose that each team in a league has a demand function for generic advertising equal to 100-5P. Advertisem
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Answer #1

3.

a.

Demand by each team:

Q = 100 - 5P

Advertisement cost = $150 each.

Inverse demand curve:

Profit = PQ - 150Q

This shows that no positive amount of advertising is feasible to be purchased by each team.

They will purchase zero ads.

b.

On league level, we have:

Demand: Q = 1000 - 5P

Inverse demand:

To maximize profit, we have:

Q = 125.

Number of advertisements that will be purchased = 125.

c.

Since advertising is feasible to be purchased only by a group containing multiple micro agents and benefits each and everyone, this makes it a public good.

It is non rival and non-excludable as well.

If some teams purchase it, it benefits other teams of the same league as well making it a public good. Hence, there is a room for free riding as well.

If you are satisfied with the answer, please provide a positive rating. Feel free to comment in case of queries.

Have a nice day ahead!

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