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. If the market price of Pacific halibut is $40 per ton, what is the maximum amount Melanie would be willing to pay per ton for Oli's ITQs?

Question

Quizplus · Accepted Answer

Melanie would be willing to pay up to $20 per ton for Oli's ITQs because her cost is $20 per ton, and the market price is $40 per ton, giving her a profit of $20 per ton. She would not pay more than her profit margin.

Melanie and Oli Are Competing Pacific Halibut Fishers