Chapter 59, Problem 2CYU

To determine

Seasonal optimal output level.

Explanation of Solution

The lobster industry is perfectly competitive. During the summer, the state of Maine has a very active lobster industry which means during summer, lobster industry in the state of Maine can cover its variable cost at least i.e., the price is above the average variable cost and hence, the price is above the minimum of average variable cost. During the rest of the year, the price is below the shutdown point or the price is below the point where marginal cost cuts the average variable cost curve. That is why the lobster industry in the state of Maine does not operate during the rest of the year.

Economics Concept Introduction

Introduction:

In the lobster industry, demand for lobster dishes remains the same throughout the year so the demand curve would be vertical and have different supply curves for the different seasons (summer and rest of the year). In the summer lobster dishes are served on the roadside which means supply is inelastic but the rest of the year supply is elastic. As a result, the price of lobster dishes would be higher in the rest of the year than in summer.