Opportunity Costs in Red Sox PDF

Opportunity Costs
The value of the best forgone alternative.
We all face opportunity costs in our everyday
lives.
Going to the movies on Saturday night, we
no longer have the time or the money to go
to a concert that evening.
When the Red Sox used Babe Ruth as a right
fielder, they gave up the chance to use him
as a pitcher. If the goal of a team is to win as
many games as possible, then the
opportunity cost of using a player at one
position is the wins that the team sacrifices
by not using him at another position.
Absolute Advantage
A person has an absolute advantage in an
activity when it is more efficient at that
activity than another person or country. - -
Because Babe Ruth was a better pitcher and
hitter than any other player on the Red Sox,
he had an absolute advantage over all his
teammates in both pitching and hitting.
Comparative Advantage
A person or country has a comparative
advantage when the opportunity cost of an
activity is lower than it is for another person
or country.
Because Babe Ruth was such a good hitter,
the opportunity cost of using him as a
pitcher (the number of wins the team would
sacrifice) was extremely high, much higher
than for other players on the team. This
meant that, even though Babe Ruth had an
absolute advantage over his teammates as a
pitcher, he did not have a comparative
advantage as a pitcher.
Supply and Demand
works best when there are many buyers and
sellers of a homogeneous good and
consumers have good information about
available prices across sellers.
Supply and demand show us how producers
and consumers respond to price changes, to
determine how much of a good or service is
produced and what value society places on
it.
Demand
Consumer demand is the relationship
between the price of an item and the
number of cards that he or she is willing and
able to buy
Market demand, which shows the quantity
that all consumers combined purchase at
each price, by summing the individual
demand curves, that is, by adding the
quantity that each consumer purchases at
each price.
The resulting curve is downward sloping, as
the price–quantity relationship is negative.
As the price of an item falls, the number of
cards that consumers buy rises. This is
known as the law of demand
A change in a good’s price causes a
change in quantity demanded,
moving quantity up along the
demand curve when the price rises
and down the demand curve when
the price falls.
- Imagine that “If baseball cards cost
this much, how many of them would
you buy?” Or, from the firm’s
perspective, “How many would we
be able to sell?”
Supply
The supply relates price to the
number of item that sellers are
willing and able to provide. Unlike
consumers, who view the price of an
item as the sacrifice they must
make, producers view the price as a
reward. the market supply curve is
the sum of the individual supply
curves. Higher prices encourage
producers (sellers) to offer more by
incentivising them to offer their
cards for sale and sellers have an
incentive to produce more new
cards as the price rises.
This results in an upwards sloping
curve as the price–quantity
relationship is positive. This is
known as the law of supply.
Output and Production Function
production in transforming inputs to
outputs
Short run capital is fixed, Long
run all inputs variable
Q(Output) = f(To, Td), T = talent o
= offensive d = defensive
Marginal Product is the added
benefit to output of adding another
input. How many talented players
can be on a roster before it begins
to effect the results negatively
MP(x) = change in quantity / change
in (x)
Adding 1 offensive talent increases
MP, adding a second the MP falls
and as the total product curve.
Declining MP is the law of diminishing
marginal returns this the theory that as you
increase one input whilst holding others
constant the MP of that input will eventually
fall, i.e having two star quarter backs but
only one will ever play and as a result does
not increase your MP but decreases it.
As the MP of an input falls, the team will use
more of that input to achieve an increase in
output, MP falls and Marginal Costs rise. MC
is the additional cost with increase in output
MC = change in C / change in quantity
Equilibrium
To properly find out what happens in the
marketplace, you need to look at Supply and
Demand together
The point of intersection is known as the
equilibrium, at equilibrium consumers
are able and willing to buy Qe at the
price Pe, which is exactly the
quantity that producers are willing
and able to sell at that price. neither
consumers nor producers have any
desire to alter their actions, the
price stays at Pe, and the quantity
at Qe
Dis-Equilibrium
Dis-equilibrium is when the market is forced
into something other then equilibrium due
to artificial or external forces
We can’t see S&D curves but do observe
equilibrium prices. Forces of S&D determine
price and any variation in price lies in
different supply, demand or both.
Changes in Supply – shifting S
A change in supply results from a
change in input prices, technology,
taxes, expectations held by
producers, and natural events that
destroy or promote products or
resources.
An increase in input prices shifts the
supply curve leftward. In the case of
baseball cards, if the price of paper
products rises, the cost of producing
each baseball card rises as well. The
net return to making and selling
cards is lower than before, and the
incentive to provide cards falls.
Technological innovation reduces
costs making an item more
profitable and encourages
producers to sell, shifting supply to
the right If producers expect the
price to rise in the future, they’ll
wait until prices rise before selling.
They’re willing to provide less today
if they can sell the item for more
tomorrow. This shifts the supply
curve to the left
Changes in Demand – shifting D
consumer income, the prices of
substitutes or complements,
consumer tastes, the number of
consumers in the market, and the
expectations that consumers hold
all change demand.