Chapter 1. Section 11, Problem 4

Step 1

Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.

Question

To preserve the North Atlantic fish stocks, it is decided that only two fishing fleets, one from the United States and the other from the European Union (EU), can fish in those waters. The accompanying table shows the market demand schedule per week for fish from these waters. The only costs are fixed costs, so fishing fleets maximize profit by maximizing revenue.

Price of fish (per pound) Quantity of fish demanded (pounds)
$17 1,800
16 2,000
15 2,100
14 2,200
12 2,300
Table

If both fishing fleets collude, what is the revenue maximizing output for the North Atlantic fishery? What price will a pound of fish sell for? (Hint: It may help to calculate total revenue.)

Revenue maximizing output under collusion is: W9ZYWUD5NT8aLa3R8qnWDQ== pounds

Price of fish per pound that maximizes revenue under collusion: $zhw5AiG32jY=

Correct! For further review see section, “A Duopoly Example.”
Incorrect. The revenue-maximizing output is 2,000 pounds per week, which will fetch a price of $16 per pound. We can see this in the table that shows the calculations for total revenue at all levels of output:
The table has three columns. Column 1 lists the ‘Price of fish’ per pound. Column 2 lists the ‘Quantity of fish demanded’ in units of pounds. Column 3 lists the calculated total revenue, which is the price of fish per pound multiplied by the quantity. The row which has the highest total revenue is highlighted, which is 2000 pounds per week at the rate of 16 dollars per pound.
If both fishing fleets collude, what is the revenue maximizing output for the North Atlantic fishery? What price will a pound of fish sell for? (Hint: It may help to calculate total revenue.)
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Step 2

Question

Price of fish (per pound) Quantity of fish demanded (pounds)
$17 1,800
16 2,000
15 2,100
14 2,200
12 2,300
Table

If both fishing fleets collude and share the output equally, what is the revenue to the EU fleet? To the U.S. fleet?

Revenue to the EU fleet: $vJuT6WiVIkq1M9zTzZYQsw==

Revenue to the U.S. fleet: $vJuT6WiVIkq1M9zTzZYQsw==

Correct! For further review see section, “A Duopoly Example.”
Incorrect. If they share the output equally, the U.S. and the EU fleets will each catch 1,000 pounds per week and have revenue of $16,000 per week. For further review see section, “A Duopoly Example.”
If both fishing fleets collude and share the output equally, what is the revenue to the EU fleet? To the U.S. fleet?
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Step 3

Question

Price of fish (per pound) Quantity of fish demanded (pounds)
$17 1,800
16 2,000
15 2,100
14 2,200
12 2,300
Table

Suppose the EU fleet cheats by expanding its own catch by 100 pounds per week. The U.S. fleet doesn’t change its catch. What is the revenue to the U.S. fleet? To the EU fleet?

Revenue to the EU fleet: $q0qzcjNuAb6V6SqMsvcjWw==

Revenue to the U.S. fleet: $PCIFO19aSaMqpTsXX0j0RQ==

Correct! For further review see section, “A Duopoly Example.”
Incorrect. If the EU fleet cheats and catches 100 pounds more, the total caught will be 2,100 pounds, which will cause the price to fall to $15. The EU fleet’s revenue will now be 1,100 × $15 = $16,500, and the U.S. fleet’s revenue will fall to 1,000 × $15 = $15,000. For further review see section, “A Duopoly Example.”
Suppose the EU fleet cheats by expanding its own catch by 100 pounds per week. The U.S. fleet doesn’t change its catch. What is the revenue to the U.S. fleet? To the EU fleet?
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Step 4

Question

Price of fish (per pound) Quantity of fish demanded (pounds)
$17 1,800
16 2,000
15 2,100
14 2,200
12 2,300
Table

In retaliation for the cheating by the EU fleet, the U.S. fleet also expands its catch by 100 pounds per week. What is the revenue to the U.S. fleet? To the EU fleet?

Revenue to the EU fleet: $SEih0JyOoDnii11Mqy5pSA==

Revenue to the U.S. fleet: $SEih0JyOoDnii11Mqy5pSA==

Correct! For further review see section, “A Duopoly Example.”
Incorrect. Now the total caught will be 2,200 pounds, which will bring the price down to $14 per pound. Since each fleet now catches 1,100 pounds, each will have revenue of 1,100 × $14 = $15,400. For further review see section, “A Duopoly Example.”
In retaliation for the cheating by the EU fleet, the U.S. fleet also expands its catch by 100 pounds per week. What is the revenue to the U.S. fleet? To the EU fleet?
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