Thus, the equilibrium revenue R, as a function of effort, is

1. Plot the equilibrium revenue model as a function of effort. Overlay on this plot a scatter plot of the revenue for the years 1940-1976. (Except for scale, the combined plot should look a lot like the one you did in 5.6.)

The economic health of the lobster industry can be measured crudely by comparing revenue with costs. These costs are essentially proportional to the level of effort exerted by the industry. Based again on Reference [9], we model costs by C(E) = 22E.

To be more precise, we are modeling the economic notion of opportunity costs: the total cost of resources (e.g., labor and capital) employed in lobstering, as measured by the most lucrative alternative uses to which these resources could have been put. Such costs include the actual costs of fuel, gear, and supplies, but in addition include interest and depreciation on capital. Even the "wages" of the lobstermen themselves must be included, where "wages" mean the money that could have been earned in alternative employment rather than the actual wages received from lobstering.

The reason for considering opportunity costs is quite straightforward. If revenues exceed opportunity costs, then lobstering will remain economically attractive. However, if opportunity costs exceed revenues, then alternative forms of employment will become more desirable, and lobstering will not be economically attractive.

Needless to say, opportunity costs are difficult to quantify precisely. Our cost function is a crude approximation based on the 1967 data in Reference [9], adjusted for all the factors listed above. But you should take all the predictions of this function with a (large) grain of salt.

2. As you did in step 1, plot the equilibrium revenue model as a function of effort. Overlay on this plot the graph of the cost function, C(E) = 22E.

From the purely economic viewpoint, the top of the revenue-effort curve is not the most advantangeous location. The lobster industry would be best off at the location which maximizes their economic rent, i.e., the revenue minus the opportunity costs. This is called the position of maximum economic yield (MEY), and the corresponding effort is denoted E_MEY.

3. What is your exact value for E_MEY? How many traps per year does this effort translate to?

4. Economic overfishing is said to occur whenever the effort exceeds that needed to maintain MEY. According to your model, has economic overfishing occurred in the Maine lobster industry? If so, in what years? Should this result be of concern to Maine lobstermen?

5. Determine the effort level at the intersection of the revenue-effort curve and the cost curve. To how many traps does this effort correspond?

6. Bionomic equilibrium is said to occur at the intersection of the revenue-effort curve and the cost curve. In an unregulated fishery, this will be the natural equilibrium point, since the economic forces and the forces of biological productivity will be in balance. Explain why this is so. Is this the most desirable situation for the lobstermen?

7. How close does the model claim the Maine lobster industry was to bionomic equilibrium in the mid-seventies? Is this good?

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Copyright CCP and the author(s), 1999