Suppose that low-ability workers have productivity of TL, while high-ability workers have productivity of H, where...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose that low-ability workers have productivity of TL, while high-ability workers have productivity of H, where тн > TL· Firms can not tell low-ability workers from high-ability workers ex ante, but can observe a worker's education level e. Firms know that half of all workers are low-ability, and half are high-ability. Any worker can acquire as much education as she wishes, but getting e units of edu- cation costs a low ability worker ce², where c> 1, and costs a high-ability worker e². Assume the labor market is competitive, so that a worker earns her expected productivity. 1. Suppose TH 15, TL 1, and c = 3. Does there exist a pooling equilibrium in which both high-and low-ability workers get 1 unit of education? If so, describe a wage function and the belief system that support this equilibrium outcome. If not, explain why. = = 2. Suppose H 15, TL = 1, and c = 3. Does there exist a pooling equilibrium in which both high- and low-ability workers get 2 units of education? If so, describe a wage function and a belief system that support this equilibrium outcome. If not, explain why. 3. Supposе TH= 15, TL = 1, and c = 3. Does there exist a separating equilibrium in which high-ability worker gets 3 units of education? If so, describe a wage function and a belief system that support this equilibrium outcome. If not, explain why. 4. For general rí, TL, and c, solve for the least-cost separating equilibrium. How does the level of education obtained by the high types vary in c in this equilibrium? What is the intuition? 5. Suppose c < 1 instead. Does there exist a separating equilibrium? If yes, find the least-cost separating equilibrium. If not, explain why. Suppose that low-ability workers have productivity of TL, while high-ability workers have productivity of H, where тн > TL· Firms can not tell low-ability workers from high-ability workers ex ante, but can observe a worker's education level e. Firms know that half of all workers are low-ability, and half are high-ability. Any worker can acquire as much education as she wishes, but getting e units of edu- cation costs a low ability worker ce², where c> 1, and costs a high-ability worker e². Assume the labor market is competitive, so that a worker earns her expected productivity. 1. Suppose TH 15, TL 1, and c = 3. Does there exist a pooling equilibrium in which both high-and low-ability workers get 1 unit of education? If so, describe a wage function and the belief system that support this equilibrium outcome. If not, explain why. = = 2. Suppose H 15, TL = 1, and c = 3. Does there exist a pooling equilibrium in which both high- and low-ability workers get 2 units of education? If so, describe a wage function and a belief system that support this equilibrium outcome. If not, explain why. 3. Supposе TH= 15, TL = 1, and c = 3. Does there exist a separating equilibrium in which high-ability worker gets 3 units of education? If so, describe a wage function and a belief system that support this equilibrium outcome. If not, explain why. 4. For general rí, TL, and c, solve for the least-cost separating equilibrium. How does the level of education obtained by the high types vary in c in this equilibrium? What is the intuition? 5. Suppose c < 1 instead. Does there exist a separating equilibrium? If yes, find the least-cost separating equilibrium. If not, explain why.
Expert Answer:
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
Students also viewed these economics questions
-
Using Table 11-1, calculate the compound amount and compound interest (in $) for the investment. (Round your answers to the nearest cent.) Time Period (years) Compound Interest Principal $22,000 [-/2...
-
In Chapter 22, we briefly discussed the signaling role of educationi.e. the fact that part of the reason many people get more education is not to learn more but rather to signal high productivity to...
-
In exercise 22.2, we showed how an efficient equilibrium with a complete set of insurance markets can be re-established with truthful signaling of information by consumers. We now illustrate that...
-
[10 marks] Click the link below to see the code for a program. Your task is as in assignment 3: re-write the code of this program so that, to a user of the program, it works as before, but in your...
-
Take a look at Figure 29-7. Suppose that Wm = $12 per hour, Wmin = $15 per hour, Qm = 1,000 worker-hours of labor input, and Qmin = 1,400 worker-hours of labor input. By how much does requiring this...
-
On June 3, Kratz Company, a U.S. company, purchased inventory on credit from a British Company for 40,000. Kratz properly recorded its inventory and accounts payable at $72,800, based on an exchange...
-
An inexperienced bookkeepei prepared the following trial balance. Prepare a correct dial balance, assuming all account balances are normal. CHENG CORPORATION Trial Balance December 31, 2006 Debit...
-
Waterworld Company leased equipment from Costner Company. The lease term is 4 years and requires equal rental payments of $43,019 at the beginning of each year. The equipment has a fair value at the...
-
\f
-
Hook Industries is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flows associated with each are shown...
-
Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The in five separate activity pools. The budgeted activity cost and...
-
Terlon Corporation has a beta of 1.23 and its required rate of return is 11.25%. The risk free rate is 4.30%. What is the required rate of return of the stock market given this data?
-
Zephyr Energies, Inc. is considering eliminating one of its product lines.The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. What...
-
Terry recently read an article about portfolio diversification possibilities and the Sharpe ratio. Currently, he owns an optimal risky portfolio. After reading the article he decides to incorporate...
-
The capital structure of Robinson Inn is current at 60% of equity (i.e., 40% of the debt). You find the debt issued by Robinson Inn has a pretax interest rate of 12%. You also find Robinson Inn...
-
Developstakeholders' (Patient Experience Manager and Facilities Manaager) communication plan outline for the hospital's covid response. (no more than 500 words) in the form of a Memo. -Propose the...
-
The accompanying table shows the maximum weights (in kilog a 10-meter sprint for 12 international soccer players. Complete Click here to view the data table. Click here to view the table of
-
Carlton Stokes owns and operates a car-detailing business named SuperShine & Detailing. For $150, Carltons business will hand wash and wax customers cars, vacuum the interior, and thoroughly clean...
-
One topic investigated by behavioral economists but not covered in the text relates to how individuals assess probabilities of random events occurring repeatedly. The hot-hand fallacy is the fallacy...
-
Suppose you have 60 hours of leisure that you could devote to work per week, and suppose that you can earn an hourly wage of $25. A: Suppose the government imposes a 20% tax on all wage income. (a)...
-
Business Application: Deterring Entry of Another Car Company: Suppose that there are currently two car companies that form an oligopoly in which each faces constant marginal costs. Their strategic...
-
Prepare a flexible budget for planning (Learning Objective 1) Lasting Bubbles produces multicolored bubble solution used for weddings and other events. The companys static budget income statement for...
-
Comprehensive flexible budget, standards, and variances problem (Learning Objectives 2, 3,4, 5) One System assembles PCs and uses flexible budgeting and a standard cost system. One System allocates...
-
Work backward through labor variances (Learning Objective 4) Amandas Music manufactures harmonicas. Amanda uses standard costs to judge performance. Recently, a clerk mistakenly threw away some of...
Study smarter with the SolutionInn App