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Suppose that workers in the labor market can be of two types: high productivity (H) and low productivity (L). If employers knew a worker's type,

Suppose that workers in the labor market can be of two types: high productivity (H) and low productivity (L). If employers knew a worker's type, they would be willing to pay H-types discounted lifetime 1 income of $10,000, and would be willing to pay L-types an income of $7,000. However, without more information, employers do not know the workers' types. In this case, employers would figure that they have a 50-50 chance of ending up with a H-type worker or a L- type worker, and would thus be willing to pay a worker an income $8,500. Workers have the opportunity to do the MAccFin program at UTSC-Management. The opportunity cost of the program (including tuition, effort and psychological cost, and everything else that would have to be given up to complete the program) is $1,000 for the H-type and $2,000 for the L-type. If some workers do the MAccFin program while others do not, employers assume that workers who did the MAccFin program are H-types and workers who did not are L-types. a) Case where the L-types are the first ones to consider doing the MAccFin program: i. Suppose the L-types do the MAccFin program. What are the H-types' net economic benefits (benefit minus opportunity cost) if they imitate the L-types and do the MAccFin as well? What are the H-types' net economic benefits if they do NOT do the MAccFin? Would the H-types imitate the L-types? ii. Anticipating the H-types' reaction discussed above in a)i), what would be the L- types' net economic benefits if they did do the MAccFin in the first place? What would be their possible net economic benefits if they did not do the MAccFin? Should the L-types do the MAccFin in the first place? b) Case where the H-types are the first ones to consider doing the MAccFin program: i. Suppose the H-types do the MAccFin program. What are the L-types' net economic benefits if they imitate the H-types and do the MAccFin as well? What are the L- types' net economic benefits if they do NOT do the MAccFin? Would the L-types imitate the H-types? ii. Anticipating the L-types' reaction discussed above in b)i), what would be the H- types' net economic benefits if they did do the MAccFin in the first place? What would be their possible net economic benefits if they did not do the MAccFin? Should the H-types do the MAccFin in the first place? c) What kind of benefit of education do the answers to parts a) and b) illustrate? Explain briefly.

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