Question

Suppose that in Milwaukee, the cost of operating a fishing boat is $4,000 per month. Suppose that if x fish boats operate in the bay, the total monthly revenue from fishing boats is 1, 000(12x ? x2). If there are no restrictions on entry and new boats come into the lake until there is no profit to be made by a new entrant, then the number of boats who enter will be X1. If the number of boats that operate in the lake is regulated to maximize total profits, the number of boats in the lake will be X2.

(a) X1 =8 and X2 =8. (b) X1 =4 and X2 =0. (c) X1 =8 and X2 =5. (d) X1 =4 and X2 =4. (e) None of the above.

Open-access goods always lead to inefficiencies

(a) in absence of taxes. (b) because there are no property rights. (c) in absence of regulations. (d) all answers are correct. (e) none of the above.

Answer 1

cost of operating a fishing boat is $4000

total monthly revenue from fishing boats is 1000(12x ? x²)

If there are no restrictions on entry and new boats come into the lake until there is no profit to be made by a new entrant, fishing will take place till P= MC

TR/x = MC

1000(12x ? x²)/x = 4000

12 - x = 4

x₁ = 8

If the number of boats that operate in the lake is regulated to maximize total profits, then MR = MC

1000(12 ? 2x) = 4000

12 - 2x = 4

x₂ = 4

Hence, option (e)None of the above.

Open-access goods always lead to inefficiencies because there are no property rights, hence, it is not regulated and there exist no taxes.

Hence, option (d) all answers are correct.