Steve has just returned from salmon fishing. He was lucky on this trip and broug

Question

Steve has just returned from salmon fishing. He was lucky on this trip and brought home two salmon. Steve’s wife, Wendy, disapproves of fishing, and to discourage Steve from further fishing trips, she has presented him with the following cost data. The cost per fishing trip is based on an average of 10 fishing trips per year.

*The original cost of the boat was $14,000. It has an estimated useful life of 10 years, after which it will have no resale value. The boat does not wear out through use, but it does become less desirable for resale as it becomes older. (Leave no cells blank - be certain to enter "0" wherever required.)

Assuming that the salmon fishing trip Steve has just completed is typical, what costs are relevant to a decision as to whether he should go on another trip this year?

Suppose that on Steve’s next fishing trip he gets lucky and catches three salmon in the amount of time it took him to catch two salmon on his last trip. How much would the third salmon have cost him to catch?

Steve has just returned from salmon fishing. He was lucky on this trip and brought home two salmon. Steve’s wife, Wendy, disapproves of fishing, and to discourage Steve from further fishing trips, she has presented him with the following cost data. The cost per fishing trip is based on an average of 10 fishing trips per year.

Explanation / Answer

Assuming that the salmon fishing trip Steve has just completed is typical, what costs are relevant to a decision as to whether he should go on another trip this year?

The relevant costs of a fishing trip would be:

Fuel and upkeep on boat per trip $ 28

Junk food consumed during trip* 7

Snagged fishing lures 7

Total $ 42

Suppose that on Steve’s next fishing trip he gets lucky and catches three salmon in the amount of time it took him to catch two salmon on his last trip. How much would the third salmon have cost him to catch?

If he fishes for the same amount of time as he did on his last trip, all of his costs are likely to be about the same as they were on his last trip. Therefore, it really doesn’t cost him anything to catch the last fish. The costs are really incurred in order to be able to catch fish and would be the same whether one, two, three, or a dozen fish were actually caught. Fishing, not catching fish, costs money. All of the costs are basically fixed with respect to how many fish are actually caught during any one fishing trip, except possibly the cost of snagged lures.

*The junk food consumed during the trip may not be completely relevant. Even if Steve were not going on the trip, he would still have to eat. The amount by which the cost of the junk food exceeds the cost of the food he would otherwise consume would be the relevant amount.

The other costs are sunk at the point at which the decision is made to go on another fishing trip.

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