Home / Questions / Eric and Kyle are fishermen with different equipment and, as a result, different costs fo
Eric and Kyle are fishermen with different equipment and, as a result, different costs for catching fish. Eric’s costs for catching fish are $1,000 per ton for the first five tons and then $2,500 per ton for any additional tons. Kyle can harvest fish at a cost of $3,000 for the first 15 tons and then $1,400 for any additional tons.
a. If society wants 30 tons of fish and for some reason will only allow one of the two guys to do all the fishing, which guy should society choose if it wants to minimize the cost of catching those 30 tons of fish? How much will the total cost of catching the fish be? What will the average cost per ton be for the 30 tons?
b. If society wants 30 tons of fish and wants them for the least cost regardless of which guy is catching them, how much should Eric and Kyle each catch? How much will the total cost of catching 30 tons be? What will the average cost per ton be for the 30 tons?
c. Suppose that Eric and Kyle can both sell whatever amount of fish they catch for $3,000 per ton. Also suppose that Eric is initially given ITQs for 30 tons of fish while Kyle is given ITQs for zero tons of fish. Suppose that Kyle is willing to pay Eric $550 per ton for as many tons of ITQs as Eric is willing to sell to Kyle. How much profit would Eric make if he used all the ITQs himself? What if Eric sold 25 tons’ worth of his ITQs to Kyle while using the other 5 tons of ITQs to fish for himself?
d. What price per ton can Kyle offer to pay Eric for 25 tons of ITQs such that Eric would make exactly as much money from that deal (in which he sells 25 tons’ worth of his ITQs to Kyle while using the rest to fish for himself) as he would by using 30 tons of ITQs for himself?
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