Willingness to Pay for Used Baseball Pitchers. Suppose a healthy baseball pitcher is worth $5 million per year to his team, compared to only $1 million per year for an unhealthy pitcher. Suppose that...

Willingness to Pay for Used Baseball Pitchers. Suppose a healthy baseball pitcher is worth $5 million per year to his team, compared to only $1 million per year for an unhealthy pitcher. Suppose that half the pitchers in the league are healthy, and half are unhealthy. According to an executive of a baseball team, “If my assumptions are correct, our team is willing to pay a maximum of $3 million for a pitcher in the free-agent market.” (Related to Application 1 on page 645.)

a. What are the executive’s assumptions?

b. Are these assumptions realistic?