Supposethere are 2 distinct types of labor: high productivity and low productivity. High productivity labor hasValue of Marginal Product (VMP) ofVMP = $120. Low productivity labor has VMP = $80. Employers know that half the labor force is high productivity and half is low productivity, but cannot distinguish them without some sort of signal. There are courses available that have no impact on productivity of workers but are costly for those workers to take. As the courses are difficult to complete they have costs to each type of labor. For high productivity workers each course costs $6. For low productivity workers each course costs $12.

a.Discuss the consequences of the firm requiring no course work. (5marks).

b.Suppose the firm is debating how much course work to require for an individual worker to be paid $120, the high VMP. It can choose 3, 4 or 7 courses as required for a worker to earn the high VMP. Discuss the choices of the firm and the responses of the two types of labor. (10marks)