Determine the point at which diminishing returns occur

Reference no: EM13186819

The Oceanic Pacific fleet has just decided to use a pole-and-line method of fishing instead of gill netting to catch tuna. The latter method involves the use of miles of net strung out across the ocean and therefore entraps other sea creatures beside tuna (e.g., porpoises and sea turtles). Concern for endangered species was one reason for this decision, but perhaps more important was the fact that the major tuna canneries in the United States will no longer accept tune caught in gill netting.

Oceanic Pacific decided to conduct a series of experiments to determine the amount of tuna that could be caught with different crew sizes. The results of the experiments follow.

NUMBER OF FISHERMAN DAILY TUNA CATCH (LB)

0 0

1 50

2 110

3 300
4 450
5 590
6 665
7 700
8 725
9 710

a. Determine the point at which diminishing returns occur.
b. Indicate the points that delineate the three stages of production.
c. Suppose the market price of tune is $3.50/pound. How many fishermen should the daily wage rate is $100?
d. Suppose a glut in the market for tuna causes the price to fall to $2.75/pound. What effect would this have on the number of fishermen used per boat? Suppose the price rose to $5.00/pound. What effect would this have on its hiring decision?
e. Suppose the firm realizes that to keep up with the demand for tuna caught by the more humane pole-and-line method of fishing, each of its boats must catch at least 1,000 pounds of fish per day. Given the preceding data, what should it consider doing?

Reference no: EM13186819

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