Assume That Skilled Labor Costs Twice as Much as Unskilled

question 62

Multiple Choice

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.

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Definitions:

Retained Earnings

The portion of a company's profit that is held or retained and saved for future use, investment, or to pay debt, rather than being distributed to shareholders as dividends.

After-tax Earnings

The net income a company generates after all taxes have been deducted from total revenue.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity which is used to finance its overall operations and growth.

Residual Dividend Policy

A strategy where dividends are paid after all project capital needs and working capital requirements are met.