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Consider the following variant of the job-market signaling model seen in class. The worker's ability, , may be either 2 or 5. Each realization occurs
Consider the following variant of the job-market signaling model seen in class. The worker's ability, , may be either 2 or 5. Each realization occurs with equal probability. The cost of acquiring education level e is c(e, ) = e2/. As in class, workers are paid a wage equal to their expected ability, conditional on the observed level of acquired education. Consider the separating equilibrium with the least amount of wasteful signaling. (a) In this separating equilibrium, what is the choice of education of the worker with ability 2? And what is the choice of the worker with ability 5? Explain your answers. (10 points) (b) In this separating equilibrium, what are the beliefs after the choices you described in part a)? Explain your answers. (5 points) (c) In this separating equilibrium, what are the beliefs after all possible choices of effort not described in part a)? Explain your answers
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