Oceanic Pacific decided to conduct a series of experiments to determine the amou
ID: 1176295 • Letter: O
Question
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 fishermen
Daily tuna catch (lb)
0
0
1
50
2
110
3
300
4
450
5
590
6
665
7
700
8
710
9
710
a. Determine the point at which diminishing return occurs.
b. Indicate the points that delineate the stages of production.
c. Suppose the market price of tuna is $3.50/pound. How many fishermen should the company use if the daily wage rate is $100?
d. Suppose a glut in the market for tuna causes the price to fall to $2.75/pound. What effect would this have on the number on the 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 to keep up with demand for tuna caught by more humane pole-and-line method of fishing, each of its boats must catch at least 1000 pounds of fish per day. Given the preceding data , what should it consider doing? Explain.
Number of fishermen
Daily tuna catch (lb)
0
0
1
50
2
110
3
300
4
450
5
590
6
665
7
700
8
710
9
710
Explanation / Answer
a. Assuming that at 0 fishermen the i.e. L=0 Q = 0 So we come to the following table & The graph we can say that the law of diminishing returns occurs with the addition of the fourth fisherman. This is because AP reaches its maximum at 5 fisherman and we know that the law of diminishing returns occurs just before this maximum is reached.
b. . Stage I: 1 to 5 units of L
Stage II: 5 to 8 units of L
Stage III: 8 units of L and above
c.At the tuna price of $3.50 & a wage of $100 The company should use 7 fishermen
d.A decrease in the price of fish to $2.75 per pound cause the company to drop one crew member the boat and use only 6 fisherman. An increase in the market price of fish to $5.00 would make it economically feasible to hire the 8th fisherman.
e.Because the maximum catch in the short run for the boat is 725 pounds, the company would have to consider certain long-term solutions like
1) Hire more skilled fisherman
2) Up skill the current crew to be more productive
3) Find out more abundant fishing areas
4) Buy bigger or more modern boats
5) Buy modern electronics equipment such as radar to find the fish more rapidly.
Ps One should also prepare a table assuming 0 Q at 0L. The table should also have Mp Ap & W
Plus plot a scatter graph to show three stages of production.
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