Dr. Shishkin
ECON 2106
Assignment #15
ANSWERS
The Tragedy of the Commons
The table above shows how the sustainable catch of fish in the Mediterranean Sea
depends on the number of boats that go fishing. The marginal cost of operating a fishing
boat is the same for all producers , the equivalent of 25 tons of fish a month.
1) What is the equilibrium number of boats in the Mediterranean Sea in this case?
Explain how you can find this answer using the concept of marginal private
benefit from adding one more additional boat.
The equilibrium number of boats is 500: this is the last number of boats for which
MB>MC per boat (30>25). If more boats join the fleet, then the average catch per boat
will drop to 20 per boat. Therefore, boats will not be joining in after 500 boats is out there
(we assume that boats can only join in groups of 100).
2) If an extra hundred boats getting into fishing while there are 300 boats currently
fishing, what would be the marginal social benefit from this increase in the
number of boats fishing?
MSB = (16,000-15,000)/(400-300) = 10 tons per boat
Email me at [email protected], and text at (678) 524-5535 if I don’t respond
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Dr. Shishkin
ECON 2106
3) What is the efficient number of fishing boats in the Mediterranean Sea, if boats
can only be added in groups of 100? Explain how you can find this answer using
the marginal analysis approach.
The efficient number of boats is 300 boats: if 100 boats are added (i.e. to 400 boats total),
the MSB is going to be below the marginal cost per boat (10 versus 25), which means we
should not go add these extra boats. On the other hand, getting to 300 boats from 200
boats makes sense because in this case MSB = 30 tons per boats, and MC = 25 tons per
boat.
4) Explain how you can double check the answer looking at the net catch (i.e. the
total catch minus cost of maintaining the boats) from the Mediterranean Sea.
We can calculate total net benefit as TB-TC. It achieves its maximum (7500) at 300
boats.
5) If individual transferable quotas (ITQs) are issued to fishing boats to limit the
catch in the Mediterranean Sea to the efficient quantity, what would be the price
of an ITQ if measured in tons of fish per month? Use the following template to
build a diagram that will help you to answer this question:
A boat owner will be willing to pay up to 25 tons fish per day to get a permit because
this is how much he will be able to get on the top of his cost of operation the boat
when an efficient number of boats are allowed to operate in the see.
Email me at [email protected], and text at (678) 524-5535 if I don’t respond
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