2. The Oceanic Pacific lleet has just decided to use a pole-and-lin...

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2. The Oceanic Pacific lleet has just decided to use a pole-and-line method of lishing instead of gill netting to catch tuna. The latter method involves the use of miles of nets strung out across the ocean and therefore entraps other sea creatures besides tuna (e.g., porpoises, sea turtles). Concern for endangered species was one reason for this decision, but perhaps more important was the fact that the major tuna canneries in the United States will no lon- ger accept tina caught by gill netting. Oceanic Pacific decided to conduct a series of experiments to determine the amount of tuna that-could be caught with different crew sizes. The results of these experiments follow. Number of Daily Tuna Fishermen Catch (lb) 1 50 2 110 3 300 4 450 5 590 6 665 7 700 8 725 9 710 a. Determine the point at which diminishing returns occurs. b. Indicate the points that delineate the three stages of production. C: Suppose the market price of tuna is $8.50/pound. How many fishermen should the company use if the daily wage rate is $100? d. Suppose a glut in the market for una causes the price to fall to $2.75/pound. What effect would this have on the number of fishermen used per boat? Suppose the price rose to $5.00/pound. What effect would this have on its hiring decision? e. Suppose the firm realizes that to keep up with the demand for tuna caught by the more humane pole-and-line method of fishing, each of its boats must catch at least 1,000 pounds of fish per day. Given the preceding data, what should it consider doing? Explain. 5. An Américan company that sells consumer electronics products has manufacturing facili- ties in Mexico, Taiwan, and Canada. The average hourly wage, output, and annual over- head cost for each site are as follows: Mexico Taiwan Canada Hourly wage rate $1.50 $3.00 $6.00 Output per person 10 18 20 Fixed overhead cost $150,000 $90,000 $110,000 a. Given these figures, is the firm currently allocating its production resources opti- mally? If not, what should it do? (Consider output per person as a proxy for marginal product.) b. Suppose the firm wants to consolidate all its manufacturing into one facility. Where should it locate? Explain. 1. Based on your knowledge of the definition of the various measures of short-run cost, com- plete this table. e TC TFC TVC AC AFC AVC MC 120 - - * x x x 1 - - - 265 - - - 2 - - 264 - - - - 3 - - - 161 - - - 4 - - - - - - 85 5 - - 525 - - - - 6 - - - 120 - - - 7 - - - - - 97 - 8 - - 768 - - - - 9 - - - - - 97 - 10 - - - - - - 127 3. Joe enjoys fishing and goes out about 20 times per year. One day, his wife, Sarah, told him that fishing is simply too expensive a hobby. "I think that you should stop going fishing," she exclaimed. "I did a little calculation, and I figured that it costs us about $28.75 for every The Theory and Estimation of Cost fish that you catch becanse you usually catch about 20 fish per trip. Besides, I always end up having to clean them. We would be much better off buying ready-to-cook fish from the local fish market." Comment on Sarah's remarks. Do you agree with her argument? Explain. (Following below are lier cost estimates.) Boat $150 (cost = $30,000, usable for 10 years, 20 outings per year) Boat fuel 45 Dock fées and insurance for the boat (average per trip) 130 Travel expenses to and from the lake 25 (100 miles @ $0.25 per mile: gas, oil, and tires. $0.18, and depreciation and insurance, $0.07) New fishing equipment purchases this year (prorated over 20 trips) 25 Annual fishing license 35 Bait and miscellaneous expenses 50 Food 40 Beverages 35 Traffic fine received on the way to the lake 40 Total cost per trip $575 So I'd tend to agree with Sara, if their spending $28.75 a trip and you multiply that by 20 fish for every trip you get $575; and then you'd multiply that by 20 times a year you get $11,500 a year on fishing alone. She's right, their better off buying it from the local market.

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a) The marginal product declined when we add one fisherman from having 3 fishermen. Hence, the point which diminishing returns occur is on the addition of the fourth fisherman.
b) The first stage of production is when the marginal product is increasing. Hence, the first stage of production is when the number of fishermen is from 0 to 3. The second stage is when the marginal product starts to decrease but is still positive. Hence, the second stage of production is when the number of fishermen is from 4 to 8. The third stage is when the marginal product becomes negative. Hence the third stage is when the...

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