To preserve the North Atlantic fish stocks, it is decided that only two fishing fleets, one from the United States and the other from the European Union (EU), can fish in those waters. The accompanying table shows the market demand schedule per week for fish from these waters. The only costs are fixed costs, so fishing fleets maximize profit by maximizing revenue.
Price of fish Quantity of fish
(per pound) demanded (pounds)
$17.……………………….. 1,800
16.………………………… 2,000
15.………………………… 2,100
14.………………………… 2,200
12.………………………… 2,300
a. If both fishing fleets collude, what is the revenue-maximizing output for the North Atlantic fishery? What price will a pound of fish sell for?
b. If both fishing fleets collude and share the output equally, what is the revenue to the EU fleet? To the U.S. fleet?
c. Suppose the EU fleet cheats by expanding its own catch by 100 pounds per week. The U.S. fleet doesn’t change its catch. What is the revenue to the U.S. fleet? To the EU fleet?
d. In retaliation for the cheating by the EU fleet, the U.S. fleet also expands its catch by 100 pounds per week. What is the revenue to the U.S. fleet? To the EU fleet?