Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider the signaling model of educational choice. Assume that a low ability majority individual has the same productivity as a low ability minority (both have

Consider the signaling model of educational choice. Assume that a low ability majority individual has the same productivity as a low ability minority (both have marginal productivity of 5) and a high ability majority individual has the same productivity as a high ability minority (both have marginal productivity of 10). Half of all majority workers and half of all minority workers are high ability. The firms do not observe workers’ ability levels. Firms assume that the majority of individuals with bachelor’s degree must be high ability workers. However, because minority households have less wealth on average than majority households, firms do not assume that minority workers with less than bachelor’s degree are low ability (as it may instead simply reflect the greater cost of education for those from families with fewer resources). 

As a result, firms pay different wages to the majority of workers based on their education but treat all minorities the same regardless of their education. Assume that the cost of getting bachelor’s degree is 3 for high-ability worker and 6 for low-ability workers. Assume that the firms pay workers their marginal product when worker’s ability is reliably revealed by their educational choices. If the ability is not known, the worker is paid her expected marginal product. 

Q1. What wages will firms pay to the majority of workers with a bachelor’s degree? Submit the answer rounded to the nearest integer. 

Q2) Use exactly the same scenario as for Q1. What wages will firms pay to the majority of workers without a bachelor’s degree?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Microeconomics

Authors: David Besanko, Ronald Braeutigam

5th edition

1118572270, 978-1118799062, 1118799062, 978-1118572276

More Books

Students also viewed these Economics questions

Question

Why isnt effective communication synonymous with agreement?

Answered: 1 week ago

Question

=+c) What do you conclude about the average value of the

Answered: 1 week ago