Suppose there are two types of folks in the world - Slackers and Overachievers. Overachievers are,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose there are two types of folks in the world - Slackers and Overachievers. Overachievers are, by nature, more productive than Slackers. However, employers cannot distinguish between these types of workers based on observable characteristics at the time of hiring. Present discounted value of productivity and costs of college education shown below are shown below for both types. Group Overachiever Slacker Value of Proportion Cost of Marginal Of College Product Population Education $200,000 40% $40,000 $120,000 60% $90,000 a. Suppose that employers believe that those with college education are the ones who are overachievers and those without a college education are the ones who are slackers. Under those set of beliefs, what are the wages paid to college graduates and those without college education? Would overachievers choose to get college education or not? Would slackers choose to get college education or not? Is this a signaling equilibrium? If yes, is it a separating equilibrium or pooling equilibrium? b. What is the highest level of tuition (cost of education) that could be charged to overachievers that would maintain a separating equilibrium? c. Suppose that the cost of college rises dramatically to $100,000 for the overachievers and $140,000 for the slackers. Suppose that employers believe that those with college education are the ones who are overachievers and those without a college education are the ones who are slackers with 60% chance and overachievers with 40% chance. Under those set of beliefs, what are the wages paid to college graduates and those without college education? Would overachievers choose to get college education or not? Would slackers choose to get college education or not? Is this a signaling equilibrium? If yes, is it a separating equilibrium or pooling equilibrium? Suppose there are two types of folks in the world - Slackers and Overachievers. Overachievers are, by nature, more productive than Slackers. However, employers cannot distinguish between these types of workers based on observable characteristics at the time of hiring. Present discounted value of productivity and costs of college education shown below are shown below for both types. Group Overachiever Slacker Value of Proportion Cost of Marginal Of College Product Population Education $200,000 40% $40,000 $120,000 60% $90,000 a. Suppose that employers believe that those with college education are the ones who are overachievers and those without a college education are the ones who are slackers. Under those set of beliefs, what are the wages paid to college graduates and those without college education? Would overachievers choose to get college education or not? Would slackers choose to get college education or not? Is this a signaling equilibrium? If yes, is it a separating equilibrium or pooling equilibrium? b. What is the highest level of tuition (cost of education) that could be charged to overachievers that would maintain a separating equilibrium? c. Suppose that the cost of college rises dramatically to $100,000 for the overachievers and $140,000 for the slackers. Suppose that employers believe that those with college education are the ones who are overachievers and those without a college education are the ones who are slackers with 60% chance and overachievers with 40% chance. Under those set of beliefs, what are the wages paid to college graduates and those without college education? Would overachievers choose to get college education or not? Would slackers choose to get college education or not? Is this a signaling equilibrium? If yes, is it a separating equilibrium or pooling equilibrium?
Expert Answer:
Answer rating: 100% (QA)
aThe wages paid to college graduates and those without college education are 200000 and 120000 respectively The value of marginal productivity for college graduates is 40000 and the cost of college ed... View the full answer
Related Book For
Fundamental Managerial Accounting Concepts
ISBN: 978-0078110894
6th Edition
Authors: Edmonds, Tsay, olds
Posted Date:
Students also viewed these accounting questions
-
Blossom Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates...
-
The separate condensed balance sheets of Patrick Corporation and its wholly owned subsidiary, Sean Corporation, are as follows: BALANCE SHEETS December 31, 2017 Patrick Sean Cash $ 80,000 $ 56,000...
-
4. (9 pts) For each of the following amino acids provide: a. The full structure under physiological conditions. b. The 3 and 1 letter codes. c. Draw the intermolecular interactions it would...
-
Is an oil pipeline a simplex system, a half-duplex system, a full-duplex system, or none of the above? What about a river or a walkie-talkie-style communication?
-
How has the performance of the commercial banking industry changed in the last twenty years?
-
V iew the following advertisement displays. In your reply ,identify the primary appeal used. Describe how you arrived at this appeal. Pictured above is Virgin Mobile's advertisement Calvin Klien...
-
Parker Company uses a perpetual inventory system. It entered into the following calendar-year 2005 purchases and sales transactions: Required Date Activities Units Acquired at Cost Units Sold at...
-
An analyst for an oil company has developed a formal linear regression model to predict the sales of 50 of their filling stations. The estimated model is Ŷ = b0 + b1 X1 where...
-
1) Which two key financial ratios is correct? a)Gross profit margin : Sales Revenues Cost of Goods Sold/Sales Revenues The ratio shows the % of revenues available to cover operating expenses and...
-
Its been 2 months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been pleased with your work, he is still a bit hesitant about unleashing...
-
Required Information [The following Information applies to the questions displayed below.] Sawyer's Lubricants produces a specialty oil for machine lubrication. The production facility can operate...
-
(a) Describe the distinguishing characteristics of production systems where: (i) job costing techniques would be used, and (ii) process costing techniques would be used. (b) Job costing produces more...
-
List the problems inherent in the use, by others, of spreadsheet models developed by users who are not trained in the procedural controls of system design and development.
-
What is the present value of $1,000 to be received five years from now if the interest rate is 12% compounded a. annually? b. semiannually? c. quarterly? d. monthly?
-
How can data be centralized in a distributed data processing system?
-
What is the future value of $1,000 to be invested now for five years if the interest rate is 12% compounded a. annually? b. semiannually? c. quarterly? d. monthly?
-
Exercise 23-13 (Algo) Special offer pricing LO P7 Farrow Company reports the following annual results. Contribution Margin Income Statement Sales (280,000 units) Variable costs Direct materials...
-
The Higher the time period of the financial security the higher the. ............... risk. O a. Maturity O b. Default and Maturity Oc. Default O d. Liquidity
-
Determining cash receipts from accounts receivable Janices Dress Delivery operates a mail-order business that sells clothes designed for frequent travelers. It had sales of $560,000 in December....
-
Pam Kelly says she has no faith in budgets. Her company, Kelly Manufacturing Corporation, spent thousands of dollars to install a sophisticated budget system. One year later the companys expenses are...
-
Lucas Weldon, the president of Easeley Industries, Inc., was beaming when he was reviewing the companys quality cost report. After he had implemented a quality-control program for three years, the...
-
Leeds Architectural Consultants began operations on January 2. The following activity was recorded in the company's Work in Process account for the first month of operations: Leeds Architectural...
-
Estimated cost and operating data for three companies for the upcoming year follow: Predetermined overhead rates are computed using the following bases in the three companies: Required: 1. Compute...
-
Dillon Products manufactures various machined parts to customer specifications. The company uses a job-order costing system and applies overhead cost to jobs on the basis of machine-hours. At the...
Study smarter with the SolutionInn App