competitive markets.docx - You are thinking of starting a...

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3. You are thinking of starting a fishing business. The fixed cost of business is the cost of a fishing rod, which is $15. (The rod cannot be used for anything except fishing.) The variable costs are bait, which is $1 per caught, and your time. The opportunity cost of your time is $10 per hour. The following table shows the relationship between hours spent fishing and number of fish caught. Hours 1 2 3 4 5 Number of fish caught 10 18 24 28 30 Hours Number of fish caught Marginal Product Fixed Cost Variable Cost Total Cost Margina l Cost ATC 1 10 - 15 10+10=2 0 35 - 3.00 2 18 8 15 18+20=3 8 53 2.25 2.94 3 24 6 15 24+30=5 4 69 2.67 2.88 4 28 4 15 28+40=6 8 83 3.50 2.96 5 30 2 15 30+50=8 0 95 6.00 3.17 a. What is the marginal product of each hour spent fishing? Explain why this number changes as the number of fish you catch increases. The marginal product of any input into production is the increase in the quantity of output obtained from an additional unit of that input. As the quantity of input increases, the marginal product decreases. This is called as diminishing marginal product. At the first hour, there are more fishes can be caught. This is because each additional hour spent fishing yields fewer additional fish.
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b. What is the total cost of catching 10 fish? What about the total cost of catching 18 fish? Draw your total cost curve. The total cost of catching 10 fish is $35 which is the sum of the fixed cost and the variable costs. The fixed cost is the costs of fishing rod which is $15 and the variable costs of catching 10 fish is $10. This is because one caught equal to $1 (10 x $1). The another variable cost is opportunity costs of time which is $10 per hour, and the hour to catch 10 fish is 1 hour, so it equal to $10 (1 x $10). Thus, $15 +$10 +$10 = $35. While, the total cost of catching 18 fish is $53. The fixed cost is the costs of fishing rod which is $15. Whereas, the variable costs which is the bait costs of catching 18 fish is $18 because one caught equal to $1 (18 x $1). The another
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