Sue fishes for cod at a cost of $2 per ton, while Dave fishes at a cost of $4 per ton. Both have one 1,000-ton ITQ and the current market price is $5 per ton. If Dave offered to sell his ITQ to Sue for $2,000, he and Sue would

Question

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Currently, both Sue and Dave have one ITQ allowing them to catch 1,000 tons of cod. Sue's cost of fishing for cod is $2 per ton, and Dave's cost is $4 per ton. At the current market price of $5 per ton, Sue's profit would be $3 per ton, while Dave's profit would only be $1 per ton.

If Dave offers to sell his ITQ to Sue for $2,000, Sue would be able to increase her catch to 2,000 tons at a cost of $2 per ton, resulting in a profit of $3 per ton or a total profit of $6,000. Dave would be able to sell his ITQ for $2,000, which is more than he would make by fishing with it himself. Therefore, both Sue and Dave would be better off by making the sale, making choice A the correct answer.

Sue Fishes for Cod at a Cost of $2 Per