As in the textbook example, assume there are two types of workers, low- and high-ability, and let e = 0.25 be the proportion of high-ability workers in the population. Assume their marginal productivity and, therefore, their wages are w) = $20 and wi = $16, and that both types can use college education to signal high ability. The cost of college education for low-ability workers is c = $5 whereas the cost for high-ability workers is c = $2. Questions 07 How much do firms pay to each worker type when they cannot differentiate them? (a) w, = $20 and w, = $16 (b) w, = $2 and w, = $5 (c) w = $17 (d) w = $18 Questions 08 Consider the wage for both types of workers and the high-ability workers' college cost, C . For which values of e (the proportion of high-ability workers in the population) do the high-ability workers prefer the separating equilibrium over the pooling equilibrium? (a) Any 8 > 1/2 (b) Any 8 12 (b) Ch = 0 and any Wh > 16 (c) Any Ch > 3 and Wh = 20 (d) Any Ch