Suppose that low-productivity workers all have marginal products of 10 and highproductivity workers have marginal products of 16.

The community has equal numbers of each type of worker.

The local community college offers a course in microeconomics.

High-productivity workers think taking this course is as bad as a cut in wages of $5 and low-productivity workers think it is as bad as a wage cut of $9.

a. There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $13.

b. There is a separating equilibrium in which high-productivity workers take the course and are paid $16 and low-productivity workers do not take the course and are paid $10.

c. There is a separating equilibrium in which high-productivity workers take the course and are paid $21 and low-productivity workers do not take the course and are paid $10.

d. There is no separating equilibrium and no pooling equilibrium.

e. There is a separating equilibrium in which high-productivity workers take the course and are paid $16 and low-productivity workers are paid $13.

Answer is B

Ronald has $18,000.

But he is forced to bet it on the flip of a fair coin. If he wins he has $36,000. If he loses he has nothing.

Ronald's expected utility function is .5x.5 + .5y.5, where x is his wealth if heads comes up and y is his wealth if tails comes up.

Since he must make this bet, he is exactly as well off as if he had a perfectly safe income of

a. $16,000.

b. $15,000.

c. $12,000.

d. $11,000.

e. $9,000.

Answer is E

In Florence Falls, N.B., there are 1,200 households, each of whom have the same preferences. There is one private good, x, and one public good, y.

Each person, i, living in the town has utility U (x_i, y) = x_i + y^0.5 (=x_i + sqrt(y)) , where x_i is private good for person i and y is the amount of public good that the town provides.

If the private good costs $1 per unit and the public good costs $50 per unit, then the Paretooptimal amount of public good for the town is

a. No greater than 100 units

b. More than 100 units but no more than 200 units

c. More than 200 units but no more than 500 units

d. More than 500 units but no more than 1,000 units

e. More than 1,000 units

Answer is B

Billy Pigskin has a von Neumann-Morgenstern utility function U(c) = c^0.5

If Billy is not injured this season, he will receive an income of $16 million. If he is injured, his income will be only $10,000. The probability that he will be injured is .1 and the probability that he will not be injured is .9.

His expected utility is

a. 3,610.

b. between 15 million and 16 million.

c. 100,000.

d. 7,220.

e. 14,440.

Answer is A

The equation describing the utility possibilities frontier, defined over the utilities of Whitney and Bobby, can be written U_W + U_B = 600.

The social welfare function is a weighted utilitarian form: W(U_W,U_B) = U_W + 4U_B. At the social welfare maximum

a. Bobby has utility of 600, Whitney has utility of zero.

b. Bobby and Whitney each have utility of 600.

c. Bobby has utility of zero, Whitney has utility of 600.

d. Bobby and Whitney both have positive utility (greater than zero) and Bobby's utility is greater than Whitney's utility.

Answer is A

Please show full explanations for each of these questions, thank you.