Nhl Profit Maximization Case Study

1846 Words Oct 2nd, 2012 8 Pages
Do NHL teams profit maximize? Explain how the authors come to this conclusion.

Overview:

Before we dive into the details on whether the NHL team or any sports team for that matter maximize profit, it would be worthwhile to answer 2 basic questions as put forth by the author:

 Would a sports fan not go to a game which he is die-hard fan of because he/she thinks the team profit maximizes?
 Would a sports team forego additional revenue?

As with any commodity, price of an arena seat is set by supply and demand. This is why it always rings false when NHL execs try to link ticket prices to player salaries.

Any sports game ticket demand in North America is influenced by a number of factors:
 Changes in per capita consumer
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The factors affecting demand for ticket is outlined in Section above.
(iii) A single price depicts a team’s choice alternative though this does not hold in real circumstance where the pricing varies based on the seat allocation.

The author has begun his analysis with a (Inverse) Demand function.

What is an Inverse Demand Function?
In economics, an 'inverse demand function', P = f−1(Q),is a function that maps the quantity of output demanded to the market price (dependent variable) for that output. Quantity demanded, Q, is a function of price; the inverse demand function treats price as a function of quantity demanded, and is also called the price function.
Contrary to what we think, an inverse demand function is NOT the reciprocal of the demand function—the word "inverse" refers to the mathematical concept of an inverse function.
In mathematical terms, if the demand function is f(P),in which P is price, so the value of the function is the quantity demanded (Q), then the inverse demand function is f -1(Q), whose value is the highest price that could be charged and still generate the quantity demanded Q. This is to say that the inverse demand function is the demand function with the axes switched. This is useful because economists typically place price (P) on the vertical axis and quantity (Q) on the horizontal axis.
The inverse demand function is the same as the average revenue function, since
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