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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.

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If the relationship described above between skilled labor and unskilled labor is true, then the company will c. hire until it equalizes the two marginal products.

Marginal product:

  • Is extra amount of production gained when an additional unit is added
  • Reduces after a certain amount of the resource is added

Because the marginal product of skilled and unskilled labor will eventually decrease, the company would hire such that both their marginal products are equal because at this point, they both contribute the same to the company.

In conclusion, option c is correct.

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