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 $25. If the market price of Pacific halibut is $35 per ton, what is the minimum amount per ton that Melanie would have to offer Oli to convince him to sell Melanie his ITQs?

Question

Quizplus · Accepted Answer

Melanie would need to offer Oli more than his profit margin per ton to make it worthwhile for him. Oli's profit per ton is $35 (market price) - $25 (cost) = $10. Offering anything above $10 would make selling the ITQs attractive to Oli.

Melanie and Oli Are Competing Pacific Halibut Fishers