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(5pts) Signaling: Suppose 60% of all workers are of high ability. Low ability workers are paid $2,000,000 over their lifetime and high ability workers are

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(5pts) Signaling: Suppose 60% of all workers are of high ability. Low ability workers are paid $2,000,000 over their lifetime and high ability workers are paid $3,000,000 over their lifetime. Currently, firms are unable to distinguish high ability from low ability workers. Assuming a college degree from USF costs $250,000 for high ability students and $450,000 for low ability students, will the USF degree be a distinguishing signal for employers between high ability and low ability workers? Will this be a stable equilibrium? (Start with a pooling equilibrium and show your calculations.)

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