I had a really long response generated, but it was a little too long.
In short, a high Beta (>1) implies the active portfolio already has high exposure to the market (systematic risk). But, we also know that portfolio A generates excess return over the market while generating unsystematic risk (specific to the securities in the portfolio that cant be diversified away). Systematic risk can be represented by Beta
So, the weight of A we should hold is a function of:
1.) W_0 = the excess return per unit of risk of the portfolio A divided by the excess market return per unit of risk of the market. If this is high, it means we should hold more of A by definition;
2.) and Beta
So, we look at 1.) and say - wow, this portfolio generates more return per unit of risk, I should put weight portfolio A higher.
But how much higher? Remember, with a high Beta, A has high systematic risk already by definition. It doesn’t do us any good to hold more of the market portfolio for diversification purposes, because A already holds that risk (as the market moves, A will move with it). But A also generates a higher return.
Equation 7 tells us that if A generates a higher excess return, and also has high systematic risk, we should hold more of it. Why? If we’re going to hold systematic risk, we may as well hold it in a portfolio that generates higher return. But, if those excess returns are generated at a cost of higher variance (ie, W_0 is below 1), we may want to hold less of A.