Industrial Policy

Australian lobsterpeople fear a collapse of the lobster industry from

over-harvesting.

They are comparing various policy options for regulation. Use the

following information to analyze their choice.

Suppose it costs $36 for each lobster trap set. Lobsters sell for $12. If X

traps are set, the harvest rate of lobsters, L, as a function of the number

of traps, is given by:

L = 9X -X2

a. With no restrictions (competitive markets exist) on the number of

traps, and open access to the waters, how many traps will be set? How

many lobsters will be harvested? How much profit will be realized from

lobstering?

b. Suppose lobsterpeople could limit the number of

traps permitted. How many traps should be permitted,

if Australia wanted to maximize overall profits from

lobstering? How many lobsters would be harvested?

What would total profits be from lobstering? Note-

prices are fixed at $12.

b. Suppose lobsterpeople could limit the number of

traps permitted. How many traps should be permitted,

if Australia wanted to maximize overall profits from

lobstering? How many lobsters would be harvested?

What would total profits be from lobstering? Note-

prices are fixed at $12.