3. More than one resource Aa Aa im Cuttner runs a surfing school on the North Sh

Question

3. More than one resource Aa Aa im Cuttner 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 $50 per day. Jim has figured out that the marginal revenue product (MRP) of the last instructor hired is $2,000, and the MRP of the last board used is $300. Which of the following statements is correct? O Jim could lower his costs without reducing his output if he employed more instructors and used fewer surfboards Jim could lower his costs without reducing his output if he employed fewer instructors and used more surfboards. O O Jim currently employs a cost-minimizing combination of surfboards and instructors. O Any of these answers may be right, depending on the price of a lesson.

Explanation / Answer

Answer for 3.

Here, first see the data given. We know that Jim uses 2 inputs in his business. We know the cost of the inputs - surfing boards cost him $15 and instructors will cost him $50. We also know the marginal revenue product of these inputs - MRP of instructor stands at $2000 and MRP of surfing boards stand at $300. Now the question as to whether he can reduce the cost by employing more of surfing boards or instructors actually depends in the fees he charges the clients for each class or lesson. Because this is his revenue curve. We need the revenue and cost curve to come to the conclusion on how quantity would change if one of the inputs is increased or decreased. Hence the answer is the last option.

Answer for 4.

Economic rent is the amount that is paid to a factor of production in excess of what is required to keep them in production. This can be because there is huge demand or limited supply of that factor. In this question, the actor is willing to work for $400,000 but he gets paid a higher amount - $6mm. Here the economic rent would be the difference between the two - 5.6million.

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