Kara and Kyle are competing sockeye salmon fishers.Both have been allocated ITQs that limit their catch to 2,000 tons of sockeye salmon each.Kara's cost per ton is $8;Kyle's cost per ton is $12. Refer to the information given.If the market price of sockeye salmon is $15 per ton,what is the maximum amount Kara would be willing to pay per ton for Kyle's ITQs?

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Quizplus · Accepted Answer

Kara's profit per ton would be $7 ($15 market price - $8 cost per ton), while Kyle's profit per ton would be $3 ($15 market price - $12 cost per ton). Therefore, Kara would be willing to pay up to $7 per ton for Kyle's ITQs, since she would still make a profit of $1 per ton ($7 profit from selling the salmon - $8 cost per ton). Any amount higher than $7 per ton would lower her profit or even make her incur losses.

Kara and Kyle Are Competing Sockeye Salmon Fishers