Refer to the following scenario to answer the questions that follow.
Five fishermen live in a village and have no other employment or income-earning possibilities besides fishing. They each own a boat that is suitable for fishing but does not have any resale value. Fish are worth $5 per pound, and the marginal cost of operating the boat is $500 per month. They all fish a river next to the village. According to the following schedule, they have determined that, when there are more of them out on the river fishing, they each catch fewer fish per month.

-What is the optimal number of boats that should operate?

Question

Refer to the following scenario to answer the questions that follow.
Five fishermen live in a village and have no other employment or income-earning possibilities besides fishing. They each own a boat that is suitable for fishing but does not have any resale value. Fish are worth $5 per pound, and the marginal cost of operating the boat is $500 per month. They all fish a river next to the village. According to the following schedule, they have determined that, when there are more of them out on the river fishing, they each catch fewer fish per month.
 
-What is the optimal number of boats that should operate?

Quizplus · Accepted Answer

To determine the optimal number of boats that should operate, we need to find the point where marginal revenue equals marginal cost. From the table, if one boat operates, the marginal revenue is $2000 and the marginal cost is $500, so the profit is $1500. If two boats operate, the marginal revenue is $1800, and the marginal cost is $1000, so the profit is $800. If three boats operate, the marginal revenue is $1500, and the marginal cost is $1500, so the profit is $0. If four boats operate, the marginal revenue is $1200, and the marginal cost is $2000, so the profit is -$800. If five boats operate, the marginal revenue is $1000, and the marginal cost is $2500, so the profit is -$1500. Therefore, the optimal number of boats that should operate is three, as it maximizes profit.

Refer to the Following Scenario to Answer the Questions That