Kara and Kyle are competing sockeye salmon fishers. Both have been allocated ITQs that limit their catch to 2,000 tons of sockeye salmon each. Kara's cost per ton is $7; Kyle's cost per ton is $11. If the market price of sockeye salmon is $16 per ton, what is the minimum amount per ton that Kara would have to offer Kyle to convince him to sell Kara his ITQs?

Question

Quizplus · Accepted Answer

Kara would need to offer Kyle more than his profit margin per ton to make it worthwhile for Kyle to sell his ITQs. Kyle's profit per ton is $16 (market price) - $11 (cost per ton) = $5. Therefore, the minimum Kara would have to offer is anything above $5 per ton.

Kara and Kyle Are Competing Sockeye Salmon Fishers