S. Klepper, Economics 73-100, Fall 2008

Quiz 7

In recent years the Pittsburgh Penguins hockey team has complained to the city of Pittsburgh that they are being strangled by the city’s recreation tax, which requires the Penguins to pay the city $1 for every ticket sold. Suppose the city eliminates the tax entirely in order to keep the Penguins in Pittsburgh. Assume that the Penguins act like a monopolist.

Which of the following statements concerning this situation are correct? Mark true for a correct answer and false for an incorrect one and provide explanations for each of your answers.

_____1. The marginal cost curve of the Penguins will shift down by $1 at every level of output.

_____2. The demand curve for Penguins games will shift to the right.

_____3. More tickets to Penguin games will be sold.

_____4. The Penguins will reduce ticket prices by $1.

_____5. The marginal revenue the Penguins take in from the marginal ticket sold to games will be lower after the elimination of the tax.