Understanding the least-cost rule
Andrew runs a surfing school on the North Shore of Oahu. He has two inputs: surfboards, which he rents from a local shop for $10 per day, and surfing instructors, whom he hires for $50 per day. Andrew has figured out that the marginal physical product (MPP) of the last instructor hired is 15 lessons, and the MPP of the last board used is 2 lessons. Which of the following statements is correct?
1. Andrew could lower his costs without reducing his output if he employed more instructors and used fewer surfboards.
2. Any of these answers may be right, depending on the price of a lesson.
3. Andrew currently employs a cost-minimizing combination of surfboards and instructors.
4. Andrew could lower his costs without reducing his output if he employed fewer instructors and used more surfboards.