Eric and Kyle are fishermen with different equipment and, as a result, different

Question

Eric and Kyle are fishermen with different equipment and, as a result, different costs for catching fish. Eric’s costs for catching fish are $875 per ton for the first five tons and then $2,188 per ton for any additional tons. Kyle can harvest fish at a cost of $2,625 per ton for the first 15 tons and then $1,225 for any additional tons. Instructions: 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 one should society choose if it wants to minimize the cost of catching those 30 tons of fish?(EricKyle). 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 who catches them, how much should Eric and Kyle each catch? Eric = tons. Kyle = tons. How much will the total cost of catching 30 tons be? What will the average cost per ton be for the 30 tons? Instructions: Round your answer to 2 decimal places.

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 his 25 tons of ITQs such that Eric would make exactly as much money from that deal (in which he sells 25 tons’ worth of ITQs to Kyle while using the rest to fish for himself) as he would by using all 30 tons of ITQs for himself? Instructions: Round your answer to 1 decimal place. $ per ton of ITQs.

Explanation / Answer

a) Eric cost for 30 tons = 875*5 + 2188*25 = $59075

So average cost = 59075/30 = $1959.17 / ton

Kyle cost for 30 tons = 2625*15 + 1225*15 = $57750

So average cost = 57750/30 = $1925 / ton

As average cost is less for Kyle so Kyle should do the fish catching with $57750 total cost and $1925 average cost.

b) As cost for first 5 ton is minimum for eric so eric will catch first 5 tons

Cost of first five tons = 5*875 = $4375

Now for next 25 tons Kyle cost = 2625*15 + 1225*10 = $51625

for next 25 tons Eric cost = 2188*25 = $54700

So next 25 tons will be caught by Kyle

Total cost = 51625 + 4375 = $56000

Average cost = 56000/30 = $1866.67 / ton

c) If Eric harvests 30 tons

Eric cost for 30 tons = $59075

Eric revenue = 30*3000 = 90000

Eric profit = 90000 - 59075 = $30925

If Eric harvests 5 tons and sells rest to Kyle for $550 per ton

Eric cost = 5*875

Eric profit = 5*3000 +550*25 - 4375 = $24275

So Eric will harvest all 30 tons

d) For next 25 tons Eric is making (3000-2188=$812) per ton. So he will be ready to sell to Kyle only for $812 or above. So minimum price offer is $812

Eric cost for first 5 ton = 5*875 = 4375

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