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Assume that there are two grades of professional football players. There are a limited number of "stars," whom the fans most want to watch, and an unlimited number of "nonstars." There are too few stars to fully staff each team, but there are enough for a few to be on each team if an owner decided to hire them.

a. Assume that football teams keep all the "gate" and TV revenues they generate and that players are free to choose their teams at the end of any season. Do stars earn more than nonstars? How are the wages of each group determined?

b. Continue to assume that players are free to choose their teams, but assume now that teams agree to share all their gate and TV revenues equally (they put them into a "pool" and divide it equally among the team owners). What happens now to salaries of stars and nonstars?

Microeconomics, Economics

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