Assume that skilled labor costs twice as much as unskilled labor, a profit-maximizing firm will
A) always hire more skilled labor because it is more productive.
B) always hire more unskilled labor because it is cheaper.
C) hire until it equalizes the two marginal products.
D) hire until the marginal product of unskilled labor is one-half that of skilled labor.
E) hire until the marginal product of unskilled labor is two times that of skilled labor.

Question

Quizplus · Accepted Answer

A profit-maximizing firm will hire labor until the marginal product per dollar spent is equal across all types of labor. Since skilled labor costs twice as much, the marginal product of unskilled labor should be half that of skilled labor.

Assume That Skilled Labor Costs Twice as Much as Unskilled