Melanie and Oli are competing Pacific halibut fishers. Both have been allocated ITQs that limit their catch to 1,000 tons of Pacific halibut each. Melanie's cost per ton is $20; Oli's cost per ton is $28. Assume that the market price of Pacific halibut is $40 per ton. If Melanie pays Oli $10 per ton for his ITQs and then catches her new limit of 2,000 tons, her profit would be

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Quizplus · Accepted Answer

Melanie's cost per ton is $20, and she pays Oli $10 per ton for his ITQs, making her total cost $30 per ton. With a selling price of $40 per ton, her profit per ton is $10. For 2,000 tons, her total profit is $10 * 2,000 = $20,000. However, this calculation overlooks the initial cost structure and the question's phrasing. The correct calculation should consider Melanie's original cost and the additional cost paid to Oli, correctly applied across the entire catch, not just Oli's portion. The correct profit calculation should subtract the total costs (including the payment to Oli for the ITQs) from the total revenue generated by selling the halibut at the market price.

Melanie and Oli Are Competing Pacific Halibut Fishers