Homework Help is Here – Start Your Trial Now!
Business
Economics
A ship captain who buys commodities on islands where they are cheap and selling them on islands where they cost more. For this, he uses a fleet of ships that can cargo (tradeable commodities) and shield themselves and the rest of your fleet from thieves. Ships are reviewed by their tons of cargo that they can carry and their "Combat Rating," this is the number of tons they can protect from being marauded by pirates, and the number of operating crew. There are 2 ships that can be purchase: Name Corvette Freighter Cargo Combat 10T 0 100T 0. ShipCost Crew $1M $10M 1 10 So, it would take 10 Corvettes to fully protect the cargo of one freighter. If any cargo is left unprotected there is a 50% chance that it will be raided by pirates and taken.

A ship captain who buys commodities on islands where they are cheap and selling them on islands where they cost more. For this, he uses a fleet of ships that can cargo (tradeable commodities) and shield themselves and the rest of your fleet from thieves. Ships are reviewed by their tons of cargo that they can carry and their "Combat Rating," this is the number of tons they can protect from being marauded by pirates, and the number of operating crew. There are 2 ships that can be purchase: Name Corvette Freighter Cargo Combat 10T 0 100T 0. ShipCost Crew $1M $10M 1 10 So, it would take 10 Corvettes to fully protect the cargo of one freighter. If any cargo is left unprotected there is a 50% chance that it will be raided by pirates and taken.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question
A ship captain who buys commodities on islands where they are cheap and selling them on islands where they cost more. For this, he uses a fleet of ships that can cargo (tradeable commodities) and shield themselves and the rest of your fleet from thieves. Ships are reviewed by their tons of cargo that they can carry and their "Combat Rating," this is the number of tons they can protect from being marauded by pirates, and the number of operating crew. There are 2 ships that can be purchase: Name Corvette Freighter Cargo Combat 10T 0. 0 100T ShipCost Crew $1M $10M 1 10 So, it would take 10 Corvettes to fully protect the cargo of one freighter. If any cargo is left unprotected, there is a 50% chance that it will be raided by pirates and taken. This means that if you purchased 9 Corvettes and 1 Freighter, 10T of cargo would be unprotected and there would be a 50% chance that pirates would steal the 10T of unprotected cargo. Suppose that each day, you can buy tons of food for $500 ($182,500 annually per ton) and sell them at a nearby island for $725 ($264,625 annually per ton) and that each day you must pay your crew $1000 ($365,000 annually per crew member) out of the profits that you earn. You have $100M to spend and the market-wide annual interest rate is 1.75%. 1. Could you make more money by allowing some of your cargo to be unprotected from pirates (i.e., if you purchased less than 10 Corvettes per Freighter)? Write down an expression that tells you the expected profit for a single Freighter for any number of Corvettes you could purchase over the course of the entire year. Be sure to include any profits made from interest on funds not spent on Corvettes 2. Use your answer from part 1 to show that for each individual Freighter is higher when you hire no Corvettes, but that profits are equal when you spend your entire $100M on ships.
Transcribed Image Text:A ship captain who buys commodities on islands where they are cheap and selling them on islands where they cost more. For this, he uses a fleet of ships that can cargo (tradeable commodities) and shield themselves and the rest of your fleet from thieves. Ships are reviewed by their tons of cargo that they can carry and their "Combat Rating," this is the number of tons they can protect from being marauded by pirates, and the number of operating crew. There are 2 ships that can be purchase: Name Corvette Freighter Cargo Combat 10T 0. 0 100T ShipCost Crew $1M $10M 1 10 So, it would take 10 Corvettes to fully protect the cargo of one freighter. If any cargo is left unprotected, there is a 50% chance that it will be raided by pirates and taken. This means that if you purchased 9 Corvettes and 1 Freighter, 10T of cargo would be unprotected and there would be a 50% chance that pirates would steal the 10T of unprotected cargo. Suppose that each day, you can buy tons of food for $500 ($182,500 annually per ton) and sell them at a nearby island for $725 ($264,625 annually per ton) and that each day you must pay your crew $1000 ($365,000 annually per crew member) out of the profits that you earn. You have $100M to spend and the market-wide annual interest rate is 1.75%. 1. Could you make more money by allowing some of your cargo to be unprotected from pirates (i.e., if you purchased less than 10 Corvettes per Freighter)? Write down an expression that tells you the expected profit for a single Freighter for any number of Corvettes you could purchase over the course of the entire year. Be sure to include any profits made from interest on funds not spent on Corvettes 2. Use your answer from part 1 to show that for each individual Freighter is higher when you hire no Corvettes, but that profits are equal when you spend your entire $100M on ships.
Expert Solution
Step 1

As per given information

There are 2 types of ships in the fleet.

Corvette and Freighter

Corvette has the capacity to protect 10T from stealing by Pirates.

The freighter has the capacity to shield 100 T from thieves.

Cost of  1 Corvette $1M and it requires to 1 crew

Cost of  1 freighter $10M and it requires to 10 crew

Buying food price=$500 per ton and selling price=$725 per ton

Cost of the per crew member =$1000 per day

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Herfindahl - Hirschman Index
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS