Each time that a rm hires a new worker, it costs the rm $100; 000 in hiring and training. Suppose a hired worker produces $50; 000 of revenue for the rm annually. Some workers (\stayers") will work for a rm for 10 years and then retire, while other workers (\early quitters") will quit their job after only 8 years of work. But all job applicants claim that they will not resign before normal retirement age (i.e., they all claim they will work for 10 years). There are three rms in the economy: Firm 1 pays salary of $30; 000 per year and a lump-sum pension of $100; 000 if the worker works until normal retirement age (i.e., works for 10 years). Firm 2 pays $33; 000 per year and o ers no pension. Firm 3 pays $33; 000 per year plus a lump-sum pension of $80; 000 if the worker works until normal retirement age (i.e., works for 10 years). For simplicity, let us assume that rms and workers do not discount.

(a)Which rm(s) do early quitters (who will quit after 8 years) choose? Which rm(s) do stayers (who will stay to normal retirement) choose? Why? [Hint: compute and compare the total earnings { salaries plus pension bene ts { that each type of workers can receive from the three rms.] (b)Which rm has the highest pro ts? Why? (c)Can rm 2 continue to pay according to the stated formula in the long run? Why?