Linda fishes for mahi mahi at a cost of $10 per ton, while Tessa fishes at a cost of $8 per ton. Both have one 1,000-ton ITQ, and the current market price is $13 per ton. If Linda offered to sell her ITQ to Tessa for $3,000, she and Tessa would

Question

Quizplus · Accepted Answer

Currently, Linda and Tessa can both catch 1,000 tons of mahi mahi. If they both caught and sold their full quota, Linda would make a profit of $3,000 ($13 selling price - $10 cost per ton) and Tessa would make a profit of $5,000 ($13 - $8).

If Linda sells her ITQ to Tessa for $3,000, she gives up the opportunity to catch and sell 1,000 tons of mahi mahi, which would have given her a profit of $3,000. Tessa now has a total quota of 2,000 tons and could make a profit of $10,000 ($13 - $8) if she caught and sold all of it.

Therefore, if Linda sells her ITQ to Tessa for $3,000, Tessa would be better off because she could catch and sell more fish, while Linda would be worse off because she would lose the opportunity to catch and sell fish. Thus, they would not make the sale.

Linda Fishes for Mahi Mahi at a Cost of $10