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 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 have to offer Oli at least $12 per ton to convince him to sell his ITQs. This is because Oli's cost per ton is $28, and he would only be willing to sell his ITQs if he could make a profit. If Melanie offered him $12 per ton, he would make a profit of $4 per ton ($40 - $28 - $12 = $4).

Melanie and Oli Are Competing Pacific Halibut Fishers