3. Joe enjoys fishing and goes out about 20 times per year. One day, his wife, S

Question

3. Joe enjoys fishing and goes out about 20 times per year. One day, his wife, Sarah, told him that fishing is simply too expensive a hobby. “I think that you should stop going fishing,” she exclaimed. “I did a little calculation, and I figured that it costs us about $28.75 for every fish that you catch because you usually catch about 20 fish per trip. Besides, I always end up having to clean them. We would be much better off buying ready-to-cook fish from the local fish market.” Comment on Sarah’s remarks. Do you agree with her argument? Explain. (Following below are her cost estimates.)

Explanation / Answer

This is true that Joe's cost for each trip is given as $575 and that he spends a lot of financial resources in catching 20 fishes per trip. Hence the cost incurred per ship becomes $28.75 which is high. The cost of boat, new equipment, annual license fees and doc fees and insurance are fixed cost in nature so they should not be taken for shut down decision. The remaining cost becomes $235 which is the variable cost. Now at 20 fishes per trip, the Average variable cost is $11.75 which is quite low of the estimated cost of $28.75. Hence he can continue fishing.

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