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Consider the following competitive labour market. There are many identical firms that can hire workers. Each firm produces the same output using a constant returns
Consider the following competitive labour market. There are many identical firms that can hire workers. Each firm produces the same output using a constant returns to scale technology and the price of output is 1. The market determines a wage level w for labour. Let denote the number of units of output (equal to revenue) that a worker can produce. A worker of type will accept a wage w if and only if it is not less than 0.65. The labour force is comprised of only four types: Type =100 =200 =300 =400 Proportion of workers 0.3 0.3 0.2 0.2 There is asymmetric information. not distinguish between different types. Explain and derive the competitive equilib- ria of this labour market. Discuss the potential for government intervention in this market
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