Question

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). Concerns 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 new 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	Daily tuna catch (lbs)
0	0
1	50
2	110
3	300
4	450
5	590
6	665
7	700
8	725
9	710

a. Determine the point at which diminishing returns occur.

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

c. Suppose the market price of tuna is $3.50/pound. How many fishermen should the company use if the daily wage rate is a $100?

d. Suppose a glut in the market for tuna causes the price to fall to $2.75/pound. What effect would this have on the number of fishermen used per boat? Suppose the price rose to $5.00/pound. What effect would this have on its hiring decision?

e. If the firm realizes that to keep up with the demand for tuna, each of its boats must catch at least 1,000 pounds of fish per day. What should it consider doing? Why?

Answer 1

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