Question

4) Suppose fishers incur a cost of $7,000 per boat to go fishing on the Columbia river. Below is the total revenue schedule for Salmon fishing based on hovw many boats enter the market. Calculate average and marginal revenue and fill in the table. (4 pts) Number of Boats Total Revenue ) Average Revenue () Marginal Revenue (S) 1,000,000 2,000,000 3,000,000 4,000,000 4,800,000 5,400,000 5,800,000 6,000,000 6,000,000 5,800,000 5,400,000 100 200 300 400 500 600 700 800 900 1,000 1,100 a. Calculate the open access equilibrium (i.e. how many boats will operate if each fisher acts independently). (3 pts) b. Calculate economically efficient number of boats in this market. (3 pts) c. Explain how a license fee could be implemented to get to the efficient equilibrium? Calculate the efficient license fee. (2 pts) d. Explain how a system of Individual Transferable Quotas could be implemented? (2 pts) e.) Explain some of the tradeoffs involved between the policies in c.) and d.) (2 pts)

Please show me all your work and be accurate. Ill make sure to give you a thumbs up. Thanks

Answer 1

Average Revenue means is calculated by diving the total revenue by the number of units of the products. Therefore, it is calculated by = Total revenue / Number of units

& Marginal Revenue is the revenue earned by selling one more additional unit of the product. Therefore, it is calculated by subtracting the total revenue before the additional unit was sold from the total revenue at preset, after the additional unit has been sold.

Please find below the Marginal revenue and average revenue willed in the table:

We can see above that the Average Revenue is equal to the Marginal Revenue.

1. : There is a total of 1,100 boats in the market, therefore in an open access equilibrium, as there is an equal opportunity for all firms or individuals, so there will be a total of 1.100 boats in the equilibrium.

2. : Economic efficiency in a market or for an individual is defined as a situation, where nothing better can be achieved or no more efficiency can be attained from the situation. In other words, the market has already attained its optimal efficiency. If more units are produced or sold, the market or firms will start incurring losses. In this case too, we can see that after 800 boats enter the market, the optimal revenue from the market is achieved. Thereafter, the entry of further boats in the market is not increasing the revenue. Therefore, the economically efficient number of boats in the market is 800.
   
3. A free market entry often leads to the unjust and unparalleled distribution of resources available in the market. In a free entry market, those firms or units in the market which do not contribute to the market revenue generation also gain from the market revenue, as revenue is then distributed equally. If a license fee is implemented, this will result in to a just and proper distribution of the revenue generated from the market. The equilibrium license fee can be calculated by taking it as a 1 % of the revenue earned from the market. Here, we can set $100 as the license fee. This will remove those boats from the market which are not fishing and thus leave only those boats which are earning profit.

4. Individual transferable Quotas would be implemented in the license fee distribution , which will allow the boats to transfer their quota of market entry to other boats when they do not want to enter the market, or are not capable of entering the market , and can transfer the quota to the other boats without any current quota at a nominal price thus gaining some amount from it. The other boat also earns the quota a comparatively lesser than the quota price from the government.

5. The Policies in C and D i.e. License fee and Quota are mutually related to each other in the sense that they can be interchanged for one another. The License fee is a permanent contract for a certain period of time, where quota is a one-off fee for the market entry. Therefore, they both indicate the fees that the boats would need to pay to enter in to the market.