Question

In: Economics

Suppose you are invited as a guest speaker to give a presentation on sustainable yield of...

Suppose you are invited as a guest speaker to give a presentation on sustainable yield of a fish stock. You noticed that some participants believe that the maximum sustainable yield for a fishery is synonymous with efficiency because efficient level of effort leads to a larger fish population. Present your arguments for them. Diagram/s required. 15 MARKS

Solutions

Expert Solution

Maximum sustainable yeild (MSY) is not the same as efficient sustainable yeild (Y). MSY can be much greater than Y. The following can be the explanation of the same -

There are three assumptions that we have to entertain for this analysis -

1. Price for which the fish can be sold is constant

2. Marginal cost of fishing is constant

3. The amount of harvest per unit effort is proportional to the stock of fish available.

We can write these assumptions as -

X = Y/E => Y = EX

Where X is the size of the fish stock, E is the effort and Y is the yeild or harvest.

Consider the following diagram as a representation of the above -

Along effort level E1, if we invest beyond Y*, it becomes unsustainable as it is outside the growth curve. So, population will come back to X*. Below Y*, populaiton will grow and come back to X*. This can be expressed as below -

The above diagram various levels of equilibrium of harvests like Y* and Ym. If we move rightwards in the above figure, it is the same as moving leftwards in the figure before. We can see that Y* which is the efficient yeild is not equal to Ym, which is the MSY.

This can further be established by the figure below -

This figure accounts for the cost and the revenue in harvesting fish. The benefit curve looks like the yeild curve as the revenue earned is a function of the amount harvested (R = pY, where p is the price per unit of yeild and R is the total revenue earned). Since the cost is constant, the cost curve is a straight line. The efficient yeild Y is at the point where the cost C = R, and this is at the point Ef in the above diagram. The MSY is not at this point because the MSY would be indicated at point Em, where the revenue is more than the cost and hence there will be more harvest still, until the point of equilibrium will be reached at point Ef.


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