Oklahoma Bosters Club Case 8.3

Question 8.3 This example deals with the topics of revenue, fixed costs, total variable cost, and total revenue. Question 8.3 starts off by introducing the huge football game that will be held in Dallas, Texas. The University of Oklahoma and the University of Texas are the teams playing against each other and it is obvious that a rivalry exists between them. The Oklahoma Boosters Club has a tradition of renting out a billboard in Austin, where the University of Texas is located, to post a sign with a negative perspective of the opposing team. They have done this for years and have never faced a problem with renting this billboard. However, there is a new owner of the specific billboard that the Oklahoma Boosters Club usually rents and now
they face a problem. Now if this new owner allowed the Boosters Club to post a negative sign of the owner’s local team he would make revenue, compared to no revenue if the billboard were to stay blank, but he also raises the risk of loosing future business deals with people in his area. Revenue is defined as the amount that a firm or organization will receive for the sale of its outputs, this is also known as income.
In this specific example, it is stated that the actual billboard is representing the fixed cost. Fixed cost is defined as costs that will not vary with the quantity of output that is produced. The fixed cost will remain the same no matter how much the quantity is changed. The billboard is the fixed cost because no matter who the owner rents it out to, the new owner will still have to pay to have the billboard built and he will still have to rent out the land that billboard is located on. Total variable cost is also apparent in this example. Total variable cost is defined in our textbook as the costs that will vary with the quantity of the output that will be produced. This is the opposite of fixed costs because as the quantity grows the variable cost also changes. Although for this case the total variable cost will be extremely small. The reason stated that the total variable cost will be small is because the total revenue that the owner will receive from allowing the Oklahoma Boosters Club to post their negative sign will be much larger then the revenue gained from plastering the billboard with a blank piece of paper. Our textbook, Principles of Microeconomics, defines total revenue as the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity is
sold.
Ultimately the new owner of the billboard decides to turn down the Oklahoma Boosters Club’s request to post a negative sign in the hometown of the football team they are playing against.
His reasoning for this decision is because although he would gain some form of revenue by allowing them to post the sign, he would also lose future business deals with people that provide him with the majority of his business deals. He would lose these deals because the people of Austin would know that he allowed for an anti-University of Texas group of people to post a sign that was negative towards their home team. The example asks the question that if the man was to also own billboards in Dallas, how and why might his decision about putting anti-University of Texas ads on those boards differ there from his final decision about the billboard in Austin. The two teams meet in the middle to play the game, which is Dallas. Unlike the billboard in Austin, I believe that this owner should allow the Oklahoma Booster Club to post their sign in Dallas. My reasoning behind my statement is that this simply isn’t home territory for the opposing team and I see it as free game. Dallas is not the hometown of the opposing University and so it would not decrease the business deals that he will make in the future and it may even increase the business deals with anti-University of Texas clients in the future. By posting the sign in Dallas, the owner would receive a profit and would gain a new client if the
Oklahoma Booster Clubs decides to carry out their tradition. The fixed cost will remain the same and the total revenue will increase along with the variable cost. Ultimately this would be beneficial for him and for the club. I believe that when given the option to post the sign in either Dallas or Austin, I think Dallas would be the smarter decision for the owner.