Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-y

Question

Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-year loan on its shrimp harvesting boat. The annual loan payment is $25,000 and the boat has a market (salvage) value that exceeds its outstanding loan balance. Prior to the 2008 shrimp harvesting season, Shrimp Galore's accountant predicted that at expected market prices for shrimp, Shrimp Galore would have a net loss of $75,000 dollars after paying all 2008 expenses (including the annual loan payment). In this case, Shrimp Galore should ?

Refer to the following table:

Total cost schedule for a competitive firm:

Output Total Cost

0 $ 10

1 $ 60

2 $ 80

3 $110

4 $165

5 $245

If market price is $60, what is the maximum profit the firm can earn?

Explanation / Answer

a) Sell off the boat and pay back the loan and retain the extra money rather than making a loss of $75,000

b) if it produces

0 -> 0 - 10 = -10

1 -> 60 - 60 = 0

2 -> 120 - 80 = 40

3 -> 180 - 110 = 70

4 -> 240 - 165 = 75

5 -> 300 - 245 = 55

Hence the maximum profit is $75

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