2. In a remote region are 2 lakes and 20 fishermen. Each fisherman can choose to

Question

2. In a remote region are 2 lakes and 20 fishermen. Each fisherman can choose to fish on either lake and retain the average catch on his chosen lake. On Lake X the total number of fish caught, X, is a function of the number of fisherman, L x , and on Lake Y the total number of fish caught, Y, is a function of the number of fisheman, L Use mathematics, diagrams and economic intuition where appropriate a. Under this allocative mechanism what is the respective number of fisherman allocated to each lake and the total and respective amount of fish caught in each lake b. As an economist, you believe that you can raise the total number of fish caught by restricting the number of fisherman allowed to fish on Lake X. What is the number of fisherman that should be allowed to fish in Lake X in order to maximize the total catch of fish in Lake X What is the number of fisherman fishing in Lake Y and the total and respective amount of fish caught in each lake? By assuming that the price of fish is a dollar, output and money are commensurate with one another. Is it possible to indicate the economic rent both algebraically in a diagram that reflects the above two scenarios? Having an aversion to coercion (as we know that a forced engagement yields an unhappy outcome), you decide to require a fishing license in Lake X If the licensing procedure is aimed at bringing about an optimal allocation of labor, how should the price of a license be set at (in terms of fish and in dollar terms)? a competitive allocation of resources is not Pareto d. Does this exercise establish that optimal? Briefly discuss

Explanation / Answer

Here is the answer for this question (AH)...

ANSWER :-

(A)Total No. of fisherman=20 No. of Lakes=2

No.of fisherman allocated to Lake X is given by 12 as after increasing the no. of fisherman to this lake the result is sub-optimal and no. of fishes caught starts declining . No.of fisherman allocated to Lake Y is given by 8

Respective no of fishes caught in lake X is 48 and Lake Y 40 Total no. of fishes Caught will be =88

(B)Maximum no. of fisherman allocated to Lake X is given by 12 as after increasing the no. of fisherman to this lake the result is sub-optimal so as to maximise the no. of fishes caught

For Lake Y the maximum no. of fishes caught(400) will happen when the 20 fisherman is allocated to this lake

(C)The Price of license is subjected to the revenue generated from the optimal no.of fish catch which is subjected to the dollar value of the fish so as to optimise the labor allocation in each lake .As the price of fish is equal in both lakes The determining factor for the license will be the competitiveness of the labor in choosing the lakes as well as the productivity of labor which is higher in lake Y. As the maximum no of fish caught w.r.t Labor is in lake Y in comparison to lake X.  

(D) A Competitive allocation of labor is not always Pareto optimal allocation in this case as in pareto optimal allocation it is impossible to improve someone better off without making other one worse off If More labor chooses to fishing in lake Y than lake X to improve the chances of getting higher revenue then it is not a pareto optimal solution as we can always improve this by compensating the labor of lake X to increase their chances of getting higher revenues .

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