Question 3. Signalling

Suppose there are two types of workers with High and Low productivity

High-productivity workers marginal product is 50

Low- productivity workers marginal product is 20

(a) Suppose 50% of workers have high productivity, if the employer cannot identify the type of worker (pools them together), what would the wage rate be?

(b) Will high productivity workers be willing to work for this wage? Justify your answer.

(c) Will low productivity workers be willing to work for this wage? Justify your answer.

(d) Suppose workers can acquire education

(e) which cost 10euro per unit for high productivity workers, and 20 euros for low productivity workers. For what range of levels of e can the high productivity workers signal their ability