Economic consulting and managerial economics

Economic consulting and managerial economics

These questions are based on litigation consulting case interviews.

QUSTION 1:Your client is Alaska Seafood, which processes seafood in Alaska. It has a 70% market share in the Alaska seafood processing industry. The Halibut, Salmon, trout, other fish, crabs, etc are caught by local fishermen in Alaska, sold to Alaska Seafood, processed by Alaska Seafood, and sold by Alaska Seafood to supermarkets in Alaska in other states, who then sell the food to consumers. Alaska Seafood is being sued by the local salmon fishermen (who only catch salmon and sell salmon to Alaska Seafood). They are saying that over the last 20 years, during which Alaska Seafood has increased its market share from 15% to 70%, it has decreased the price per pound (lb) of salmon that it pays the salmon fishermen. The salmon fishermen argue that this is because of their large market share, which now enables them to charge monopsony prices. You argue that the prices Alaska Seafood is charging are notmonopsony prices; instead, they are fair prices.
a.    What is the profit equation? (Hint: Profits = _______ –  ________)
b.    Why would Alaska Seafood want to expand so much? (HINT: Think about what has to happen for per unit profits to increase)
c.    To defend Alaska Seafood, you look at the wages of salmon fishermen in the state of Washington, where the seafood processing industry is more competitive. To defend your client, do you hope to find that the Washington salmon fishermen are paid similar wages or different wages? Explain.
d.    Assume that the “demand for salmon” is too narrow of a market definition and that there is a broader “demand for fish.” How would an increase in the supply of Russian trout in the global market affect the US market price of salmon? How would it affect the price Alaska Seafood is willing to pay its fishermen?

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