Question

Instructions: Answer all questions. Label all graphs and tables completely. Numerical solutions may still require explanation. Show all your work. QUESTION 1: Northwest Salmon fishers fear the collapse of the salmon industry from over-harvesting. A fisheries board is comparing various policy options for regulation. Use the following information to analyze their choice. It costs each fishing vessel $33 to enter the fishery each season (this covers the cost of crew salaries, fuel expenses, and misc, upkeep). Salmon are sold for $1 each. If X vessels enter the fishery, the total harvest of salmon, S, as a function of the number of vessels is given by: S = 40X - X A. Fill in the following table: TC I TR MR Num boats AR MC Profit L2 Town ith no restrictions on the number of fishing vessels, and open access to the waters, how many vessels will enter the fishery? What will be the industry-wide profits (resource rent) earned from fishing?

Answer 1

A.

TC Num Boats AR MC Profit MR 39 6 10 66 76 99 132 33 165 198 231 111 144 175 204 231

TC (Total Cost) = 33 x Num Boats

TR (Total Revenue) = {(40 x X) - X2} x Num Boats x 1

MR ( Marginal Revenue) = Total Revenue at X - Total Revenue at (X-1)

AR (Average Revenue) = Total Revenue / Num Boats

MC (Marginal Cost) = Total Cost at X - Total Cost at (X-1)

Profit = Total Revenue - Total Cost

B. With no restrictions a maximum of 6 boats will fish. As Beyond 6 boats there are no profit. The industry wide profit is $6. ( Remember this is not the profit maximising number, profit would be maximised both at 3 or 4 boats, but 3 boats is the mpst efficient as AR is higher)

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