Consider a firm that has two types of workers: workaholics and hardworkers. The production process is such that all employees have to work in teams of two people. A workaholic who works in a team with another workaholic produces $100 worth of output. If a workaholic is assigned to a team with a hardworker, their outputs are worth $90 and $80 respectively. In a team of two hardworkers each produces $50 worth of output. Currently 40% of the workforce are workaholics and remaining 60% are hardworkers.

a.How should the firm assign hardworkers and workaholics to teams?

b.Suppose workaholics and hardworkers can be easily distinguished and require different wages. At what wage ratio is the firm indifferent between hiring hardworkers and workaholics?

c.How does your answer to b change if the ratio of hardworkers and workaholics in the firm changes?