Suppose That in Horsehead, Massachusetts, the Cost of Operating a Lobster

question 15

Multiple Choice

Suppose that in Horsehead, Massachusetts, the cost of operating a lobster boat is $2,000 per month. Suppose that if x lobster boats operate in the bay, the total monthly revenue from lobster boats in the bay is $1,000(10x - x²) . If there are no restrictions on entry and new boats come into the bay until there is no profit to be made by a new entrant, then the number of boats who enter will be X₁. If the number of boats that operate in the bay is regulated to maximize total profits, the number of boats in the bay will be X₂.

• A) X₁ = 8 and X₂ = 8.
• B) X₁ = 4 and X₂ = 2.
• C) X₁ = 8 and X₂ = 4.
• D) X₁ = 12 and X₂ = 8.
• E) None of the above.

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Definitions:

Product Costs

All costs involved in acquiring or manufacturing a product, including raw materials, labor, and overhead, up to the point of sale.

Period Costs

Expenses that are not directly tied to production, such as administrative and selling expenses, which are expensed in the period they are incurred.

Variable Costs

Expenses that change directly in proportion to changes in business activity levels or volumes.

Contribution Margin

The sum of money left over after variable costs are subtracted, which is available to pay for fixed costs and add to profit.