1) Suppose, as an owner, you could leave the highly competitive league (in terms of closeness of contests) that you currently play in and enter a league that assured your team would never lose again. Would you want to do so? Why or why not?

2) Explain how the law of diminishing returns provides a natural tendency toward competitive balance.

Answer:    

1.

Studies show that, while fans want their hometown team to win, they do not want their team to win all the time. If a team wins all its games, attendance will decline, as the contest becomes too predictable. The team should choose to stay in the competitive league.

2.

The law of diminishing marginal returns means that adding good players will eventually add less and less to a team’s performance on the field and at the box office. Adding an All Star goalie will not bring many more wins if a hockey team already has an All Star goalie. Thus, the marginal benefit of the second goalie is probably less than the marginal cost of hiring him. As a result, even the wealthiest teams do not have an incentive to sign all the best players. Diminishing returns thus add to competitive balance.