Question

1. Captain Starbucks, recently promoted to captain has purchased new fishing equipment which, increased fixed costs but also increased the productivity of labor (his predecessor became tangled in fishing lines, was pulled overboard and perished). Please show the impact on the fishing operations cost curves. Please explain why and how you have modified your model of the Pequod’s costs of operation. (Hint: There is no need to use numerical values in your analysis, I am looking for an analysis of movements in the cost curves: do costs increase, decrease, stay the same and a brief explanation for the movement.)

Answer 1

As new fishing equipment increased fixed costs, so the overall cost increases. Thus the cost curve shifts rightwards increasing the overall costs.

As the new fishing equipment increases the fixed cost, the Fixed cost curve shifts from FC to FC'. Thus the overall cost which is a sum total of Fixed Cost and Variable Cost, also increases from TC to TC'.