Answer to Question #319699 in Microeconomics for mandy

Question

In the summer of 2012, due to plentiful lobsters, the price of lobster in Maine fell to $1.25 a pound, which was 70% below normal and nearly a 30-year low. According to the Massachusetts Lobstermen's Association, "Anything under $4 a pound, lobstermen can't make any money. At least 30 boats announced that they would stay in port until the price rose. However, Canadian and other U.S. fishers continued to harvest lobsters. Why did some lobster boats stop fishing while others continued?

Answer 1

Why did some lobster boats stop fishing while others continued?

This can be explained by the concept of shutdown point of a business.

This is a single product business so the shutdown point may be reached when the marginal revenue earned drops below the marginal variable cost. Beyond this point the business makes losses and may opt for complete shutdown.

This is what pushed some of the lobster harvesters to halt the harvesting till the price rose above $4 a pound.