Question

3) Fisheries in the open ocean can be considered as open-access resources. Assume that fishing efforts are measured in number of boat trips. Following table provides total product or total output of the fisheries Number ofTotal Output (hundred tons) boat trips 0 100 200 300 10 20 30 38 500 600 700 800 900 1000 1100 1200 48 50 50 48 38 30 a) Cost of operating a boat is $4000 per trip. The value of fish to the fisherman is $1000 per ton. Calculate total revenue, marginal revenue and average revenue for each level of output. b) How may boat trips will be made if it is open-access equilibrium? c) What should be the socially efficient number of boat trips? d) How can we achieve socially efficient outcome for this problem?

Answer 1

Number of boat trip	Total Output	TR	MR	AR	TC	Scarcity Rent
0	0	0		0	0	0
100	10	1000000	1000	1000	400000	600000
200	20	2000000	1000	2000	800000	1200000
300	30	3000000	1000	3000	1200000	1800000
400	38	3800000	1000	3800	1600000	2200000
500	44	4400000	1000	4400	2000000	2400000
600	48	4800000	1000	4800	2400000	2400000
700	50	5000000	1000	5000	2800000	2200000
800	50	5000000	0	5000	3200000	1800000
900	48	4800000	1000	4800	3600000	1200000
1000	44	4400000	1000	4400	4000000	400000
1100	38	3800000	1000	3800	4400000	-600000
1200	30	3000000	1000	3000	4800000	-1800000

a) Total revenue is calculated as T R = {total outputs} times 100 times 1000 marginal revenue is calculated as M R = T R_2 - T R_1/T O_2 - T O_1 T_O = total output Average revenue is calculated as A R = T R/TO b) In open access equilibrium T R = T C the scarcity rent is zero, scarcity rent is difference between T R and T C. The S R is minimized at 1000 trip. Then open access equilibrium c) The social optimum is where S R is maximum this occurs at 500 boat trip d) To achieve social efficient way the entry to ocean should be restricted by giving out permit to the boat owner. It should be illegal to fish in ocen without the permit. This should decrease effort to desired level and solve the problem of open access