Billy\'s fishing charter service offers deep sea fishing trips. His boat holds u

Question

Billy's fishing charter service offers deep sea fishing trips. His boat holds up to 10 customers and a half day trip always costs $100 per customer. Complete the table prior to answering the questions.

A. Is Billy's company operating in the short run or long run? How do you know?

B. Is Billy's company operating in a perfectly competitive market? How do you know?

C. How many customers would Billy prefer to take on his boat at a single time in order to maximize profits? What would his profits be at that level?

Customers Price Total Revenue Total Cost Profit Marginal Cost Marginal Revenue Marginal Profit 0 100 --- --- --- 1 150 2 195 3 235 4 270 5 300 6 340 7 400 8 480 9 600 10 760

Explanation / Answer

Last marginal profit is -60 (Couldnt write there)

1. Operating in short run as fixed cost of 100 is there. (As cost at 0 customers is 100)

2. Market is perfectly competitive as price is fixed at 100

3. Profit is maximum when MR>=MC and MC is increasing.

This is achieved at 8 customers with profit = 320$

Customers Price Total Revenue Total Cost Profit Marginal Cost Marginal Revenue Marginal Profit 0 100 0 100 0 --- --- --- 1 100 100 150 -50 50 100 -50 2 100 200 195 5 45 100 55 3 100 300 235 65 40 100 60 4 100 400 270 130 35 100 65 5 100 500 300 200 30 100 70 6 100 600 340 260 40 100 60 7 100 700 400 300 60 100 40 8 100 800 480 320 80 100 20 9 100 900 600 300 120 100 -20 10 100 1000 760 240 160 100

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