### Lecture 2

``` Homework
#8 Due Thursday
 Quiz
#4 Thursday Nov. 17th
 Homework #9 Thursday Nov. 17th
 Group Outline due Thursday Nov. 17th
 Exam
#4 Dec. 1st
 What
is the difference between a stable
and an unstable equilibrium in the
population of a fishery? Use a graph to
maximum sustained yield occur in your
graph?
 Use
a graph with a total cost curve and a
total revenue curve for a fishery to show
the difference between the economically
optimal harvest, the maximum sustained
yield, and the open-access equilibrium.
 What
is the typical relationship between
the economic optimum (EE), maximum
sustained yield (EM), and the open-access
equilibrium (EO)?
 If
the price of fish increases, total revenue
will increase, shifting the open-access
equilibrium higher and the stock of fish
lower.
 As stocks deplete, we move closer to the
minimum viable population.
 Lower stocks imply more scarcity and
higher prices.
 Private
Ownership
 Raise the
• NB =0
Real Cost of Fishing
 Permits or Taxes
• Welfare transfer to government
 ITQs (Individual Transferable Quotas )
• Welfare depends on initial winners and losers
 ITQs Allocation
• Auction
• Grandfathering
• Lottery
 Efficient ITQ Market
• Quota entitles holder to catch a specified
amount of the total authorized catch
• Catch authorized is equal to the efficient catch
for the fishery
• Quotas should be freely transferable among
fishermen
Stock
10
20
30
40
50
60
70
80
90
100
Growt
h
0
800
1600
2400
2800
3000
2800
2200
1200
0
Find the MSY, natural equilibriums, and identify the stable and unstable
equilibriums
Price = \$1,000/ton Cost per Boat is \$4,000
 Construct
a graph showing the relationship
between stock and growth
 Construct
a graph showing the relationship
between stock and the growth rate
 What
stock level corresponds to the
maximum growth rate?
 What stock level corresponds to the MSY?
Growth Rate
7
6
6
5.3
5
4
3
4
5.6
5
4
2.75
Growth Rate
2
1
0
-1
-2
1.33
0.75
0
-1
Growth
3500
3000
2500
2000
1500
1000
500
0
Growth
10 20 30 40 50 60 70 80 90 100
 Identify
the stable and unstable
equilibriums in a natural state.
 Now
assume that we can translate this
population/yield relationship into an
economic relationship between fishing
boats and total product.
Boats
100
200
300
Total
Product
1200 2200 2800
400
500
600
700
800
900
3000
2800
2400
1600
800
0
 Fish
prices average \$1,000 tons and the
cost to operate a fishing boat for a year is
\$4,000.
 Construct
a graph showing total revenue
and total costs in the fishery.
 Derive
graphs showing marginal and
average revenue and marginal cost.
4,000,000
3,500,000
3,000,000
2,500,000
Total Revenue
Total Cost
2,000,000
1,500,000
1,000,000
500,000
0
100 200 300 400 500 600 700 800 900
A
natural state with no fishing industry
A
fishing industry obtaining the MSY from
the fishery
A
fishing industry operating under an
efficient management plan, with
economically optimal returns
A
fishing industry characterized by open
access.
```