Posted by **Janet** on Monday, August 30, 2010 at 12:27pm.

# of Fisherman Daily Tuna Catch

0 0

1 50 0.02

2 110 0.02

3 300 0.01

4 450 0.01

5 590 0.01

6 665 0.01

7 700 0.01

8 725 0.01

9 710 0.01

Suppose market price of tuna is $3.50/lb. How many fisherman should the company use if the daily rate is $100?

- Managerial Economics -
**Vikas Jethani**, Friday, September 10, 2010 at 3:13am
L Q MP AP MRP W

0 0

50 175.00

1 50 50.00 100

60 210.00

2 110 55.00 100

190 665.00

3 300 100.00 100

150 525.00

4 450 112.50 100

140 490.00

5 590 118.00 100

75 262.50

6 665 110.80 100

35 122.50

7 700 100.00 100

25 87.50

8 725 90.63 100

-15 -52.50

9 710 78.80 100

a. Based on the knowledge of the law of diminishing returns in relation to the three stages of production and without knowing the MP for the first three fishermen, we can surmise 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. 7 L

d. They would have to drop one crew member from the boat and use only 6 fishermen. 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-run actions. For example: 1) find more skilled fisherman 2) train the current crew to be more productive 3) seek 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.

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