4. Eric and Kyle are fishers with different equipment and, as a result, different costs for catching fish. Eric’s costs for catching fish are $1000 per tonne for the first 5 tonnes and then $2500 per tonne for any additional tonnes. Kyle can harvest fish at a cost of $3000 for the first 15 tonnes and then $1400 for any additional tonnes. [LO19B.4]

a. If society wants 30 tonnes of fish and for some reason will only allow one of the two fishers to do all the fishing, which fisher should society choose if it wants to minimize the cost of catching those 30 tonnes of fish? What will be the total cost of catching the fish? What will be the average cost per tonne for the 30 tonnes?

b. If society wants 30 tonnes of fish and wants them for the least cost regardless of who is catching them, how much should Eric and Kyle each catch? What will be the total cost of catching 30 tonnes? What will be the average cost per tonne for the 30 tonnes?

c. Suppose that Eric and Kyle can both sell whatever amount of fish they catch for $3000 per tonne. Also suppose that Eric is initially given ITQs for 30 tonnes of fish while Kyle is given ITQs for zero tonnes of fish. Suppose that Kyle is willing to pay Eric $550 per tonne for as many tonnes of ITQs as Eric is willing to sell to Kyle. How much profit would Eric make if he used all the ITQs himself? What if Eric sold 25 tonnes of his ITQs to Kyle while using the other 5 tonnes of ITQs to fish for himself?

d. What price per tonne can Kyle offer to pay Eric for 25 tonnes of ITQs such that Eric would make exactly as much money from that deal (in which he sells 25 tonnes’ worth of his ITQs to Kyle while using the rest to fish for himself) as he would by using 30 tonnes of ITQs for himself?