10 The Ocean Pacific fleet has just decided to use a poleand

10) The Ocean 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. 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.

Number of Fishermen

Daily Tuna Catch (lb)

0

0

1

50

2

110

3

300

4

450

5

590

6

665

7

700

8

725

9

710

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

B. 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?

C. 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?

Solution

A) According Marginal Wges theory Workers will employ till W= MRP.According this table company use 9 Fishermen because Because till 9 Fishermen = company will pay Total wages ( 9X 100= $ 900) but Total Total Revenue will be ( 710X $ 3.50= $ 2485) It means Total Revenue is greater then total wages .

B) After decreasing price from $3.50 /pound to $ 2.75 / pound company will use 9 fishermen because after decreasing price of fish the Total Revenue is also higher then Total wages ( 9X$100=$900) < ( 710X $ 2.75= $1952.5)

C)After Increasing Price of Tuna $ 5 /pound, company will use more then 9 fishermen because Total Revenue is very high ( 710X $ 5= 3550) and Total Wages is only( 9x 100=$900)