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Suppose that workers can be divided into two groups: hard workers and slackers. Let y be the number of years of education. For Group A
Suppose that workers can be divided into two groups: hard workers and slackers. Let y be the number of years of education. For Group A (hard workers) the cost of attaining an educational level y is CA(y)=$20y. For workers in Group B (slackers) the cost of attaining an educational level y is CB(y)=$60y. The rm would like to be able to distinguish between the groups but can only observe a worker's education level. The rm offers a salary of $410 if a worker has y 2 y*, and $50 if the worker has y
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