Question:
University of Texas at Arlington professors Craig A. Depken II and Dennis P. Wilson have studied the pay of baseball players and discovered the following relationship between each play and team revenue (values adjusted for inflation):
Play Change in Team Revenue
Home run $406,143
Offensive walk $71,602
Hit $36,911
Strikeouts $-71,602
a. Assuming the relationships hold true and given performance below, what salary would you estimate for each player in 2006?
Player 2006 Salary Hits Home Runs Walks Strikeouts
Alex Rodriguez $22 million 166 35 8 139
Barry Bonds $19 million 99 26 38 51
Jeff Ken $9.4 million 119 14 0 69
b. If the pay of these players is higher than their marginal revenue products, how can you explain that?