Economics and Management

1.) The Oceanic Pacific fleet has just decided to use a pole-and-line method of
fishing instead of gill netting to catch tuna. The latter method involves the
use of miles of nets strung out across the ocean and therefore entraps
other sea creatures besides tuna (e.g., porpoises, sea turtles). 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 longer accept tuna caught by gill netting.
Oceanic 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.
Number of Fishermen
0
1
2
3
4
5
6
7
8
9

Daily Tuna Catch (LB)

0
50
110
300
450
590
665
700
725
710

a. Determine the point at which diminishing returns occurs.

The diminishing marginal returns sets in at L = 8

b. Indicate the points that delineate the three stages of production.

The first stage is between L = 0 to 2, the second stage is between L =
2 to 8, and the third stage is beyond L = 8.

c. Suppose the market price of tuna is $3.50/pound. How many fishermen

should the company use if the daily wage rate is $100?
The profit is maximized at hiring 7 fishermen, and the maximum profit
is: $1750
d. Suppose a glut in the market for tuna causes the price to fall to
$2.75/pound. Suppose the price rose to $5.00/pound. What effect
would this have on its hiring decision?
At P = $2.75 per pound, the number of labourers that should be hired
in order to maximize profits is: 6
Number
of
Fisherm
en
0
1
2
3
4
5
6
7
8
9

Daily
Tuna
Catch
(LB)
0
50
110
300
450
590
665
700
725
710

Marginal
Product of
Labor
---------------50
60
190
150
140
75
35
25
-15

Total Revenue
at P = $3.50
0
175
385
1050
1575
2065
2327.5
2450
2537.5
2485

Total Cost
at W =
$100
0
100
200
300
400
500
600
700
800
900

Profit
0
75
185
750
1175
1565
1727.5
1750
1737.5
1585

At P = $5.0 per pound, the number of labourers that should be hired in

order to maximize profits is: 8
Number
of
Fisherm
en
0
1
2
3
4
5
6
7
8
9

Daily Tuna
Catch (LB)
0
50
110
300
450
590
665
700
725
710

Mrginal
Product of
Labor
---------------50
60
190
150
140
75
35
25
-15

Total
Revenue
at P =
$5.00
0
250
550
1500
2250
2950
3325
3500
3625
3550

Total Cost
at W =
$100
0
100
200
300
400
500
600
700
800
900

Profit
0
150
350
1200
1850
2450
2725
2800
2825
2650

e. Suppose the firm realizes that to keep up with the demand for tuna
caught by the more humane pole-and-line method of fishing, each of its

boats must catch at least 1,000 pounds of fish per day. Given the
preceding data, what should it consider doing? Explain.
In order to catch at least 1000 pounds of fish every day, the firm
should decide to hire even more than 9 labourers. It should expand it
labour schedule to include the costs and production for more than 9
labourers.
2.) Based on your knowledge of the definition of the various measures of
short-run cost, complete the table.
Q
0
1
2
3
4
5
6

TC
120
120
384
483
568
645
720

TFC
120
120
120
120
120
120
120

TVC
0 x

7
8

799
888

120
120

679
768

9
10

896
1023

120
120

776
903

264
363
448
525
600

AC

265
192
161
142
129
120
114.1
43
111
99.55
56
102.3

AFC
x
120
60
40
30
24
20
17.14
29
15
13.33
33
12

AVC
x

MC
x

0
132
121
112
105
100

0
264
99
85
77
75

97
96

79
89

97
90.3

8
127