A baseball team has signed a draft pick to a two year contract. The player's expected marginal revenue product in year 1 and year 2 are $1-million and $1.7-million respectively. The contracted wage is $1.3-million in the first year. The interest rate is 7% each year. The competitive wage in year 2 is expected to be $1.8-million. If the team is indifferent about the player resigning with it at the end of his contract, how much will they pay him in the second year? Use a$ and commas.

A baseball team has signed a draft pick to a two year contract. The player's expected marginal revenue product in year 1 and year 2 are $1-million and $1.7-million respectively. The contracted wage is $1.3-million in the first year. The interest rate is 7% each year. The competitive wage in year 2 is expected to be $1.8-million. If the team is indifferent about the player resigning with it at the end of his contract, how much will they pay him in the second year? Use a$ and commas.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 3MC

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