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Understanding the least-cost rule
Eric runs a surfing school on the North Shore of Oahu. He has two inputs: surfboards, which he rents from a local shop for $15 per day, and surfing instructors, whom he hires for $60 per day. Eric has figured out that the marginal physical product (MPP) of the last instructor hired is 12 lessons, and the MPP of the last board used is 9 lessons.
Which of the following statements is correct?
A. Eric could lower his costs without reducing his output if he employed fewer instructors and used more surfboards.
B. Eric could lower his costs without reducing his output if he employed more instructors and used fewer surfboards.
C. Eric currently employs a cost-minimizing combination of surfboards and instructors.
D. Any of these answers may be right, depending on the price of a lesson.
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