If skilled labor costs three times as much as unskilled labor, a profit-maximizing firm will vary the quantity of each type of labor used until the
A) amount of unskilled labor used is three times the quantity of skilled labor used.
B) amount of unskilled labor used is one-third the quantity of skilled labor used.
C) marginal product of skilled labor is one-third that of unskilled labor.
D) marginal product of skilled labor is three times as great as that of unskilled labor.

Question

Quizplus · Accepted Answer

A profit-maximizing firm will hire labor until the marginal product per dollar spent on each type of labor is equal. Since skilled labor costs three times as much, its marginal product must be three times that of unskilled labor to justify the higher cost.

If Skilled Labor Costs Three Times as Much as Unskilled