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MRP Theory

6) Using data from 2001-2004 in professional baseball, the following regression was

MRP = $28,852.60*Hits + $208,285*HomeRuns + $36,165.40*Walks
â?" $23.956.20*Strikeouts

Using these numbers, estimate the marginal revenue product of the following baseball
players. You will need to get player production statistics, available at:
baseballreference.com (or a similar baseball archive), and obtain the following
information for each player: hits (H), homeruns (HR), walks (BB), and strikeouts (SO).
Note that most archives include each homerun twice â?" once as a hit and once as a

Year, Player, Team, Salary, Estimated MRP, Owner Rents
2004 Rafeal Furcal Braves $3,700,000
2004 Barry Bonds Giants $18,000,000
2004 Lyle Overbay Brewers $326,000
2004 Kevin Mench Rangers $345,000
2004 Alfonso Soriano Rangers $5,400,000
2004 Alex Rodriguez Yankees $12,000,000*
* Yankees only paide $12 million of his $22 million salary.

a. For each player, calculate the estimated total value to team owners and the rents each player generated for their team (i.e., $Rents = $Est. MRP -
$Salary). Enter your calculations in the table above.

b. Given your calculations, do you think baseball player salaries are too high? Explain.

c. Using MRP theory, explain why NBA players make more than other sports players.

Solution Preview

Hi there,

From the information you send, it is evident that they want you to do some extra research. You have to go to baseballreference.com and obtain the information for each player and put it in the equation to find out what the MRP is.

Just make an excel sheet enter the data and then calculate using the formula above. This takes care of question a. You will find the marginal revenue product.

For b, ...

Solution Summary

MRP Theory is illustrated in this tutorial.