The Ocean Pacific fleet has just decided to use a pole-and-line method of fishin
ID: 1216092 • Letter: T
Question
The Ocean Pacific fleet has just decided to use a pole-and-line method of fishing instead of gill netting to catch tunes. The latter method involves the use of miles of nets strung out across the ocean and therefore entraps other sea creatures besides funa (e.g. porpoises, sea furties). Concern for endangered species was one reason for this decision, but perhaps more important was the fact that the major tuna canneries in the United States will no large accept tuna caught by grill netting. Ocean Pacific decided to conduct a series of experiments to determine the amount of tuna that could be caught with different crew sizes. The results of these experiments follow. At what point (what number of fisherman) does diminishing returns occur? Refer to the previous question. Indicate the number of fisherman at the points that delineate the three stages of production. Enter your answers as whole numbers. Refer to question 11. Suppose the market price of tuna is $3.50 pound. How many fishermen should the company use if the daily wage rate is $100? Refer to question 11. a glut in the market for tuna causes the price to fall to $2.75 pound. At this new price, how many fishermen should the company now use if the daily wage rate remains at $100? Refer to question 11. Suppose the price of tuna rises to $5.00/pound At this new price. how many fishermen should the company now use if the daily wage rate remains at $100?Explanation / Answer
(11) Marginal product of labor (MPL) = Change in quantity / Change in number of fishermen
Since MPL starts falling from L = 4, diminishing returns start from this level.
(12)
Stage I is from L = 0 to L = 3 where MPL is increasing.
Stage II is from L = 4 to L = 8, the range over which MPL is falling but is positive.
Stage III is from L = 9 where MPL is negative.
(13) Labor demand is optimum when
Price of output x MPL = Wage rate
MPL = Wage rate / Price of output = $100 / $3.5 = 28.57
The closest value of MPL is equal to 25, where L = 8.
(14) In this case,
MPL = $100 / $2.75 = 36.36
The closest value of MPL is equal to 35, where L = 7.
L Q MPL 0 0 - 1 50 50 2 110 60 3 300 190 4 450 150 5 590 140 6 665 75 7 700 35 8 725 25 9 710 -15Related Questions
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