Question
Workers come in two types, high-productivity and low-productivity. High-productivity workers generate net revenue of $100,000 per year to their employers, and low-productivity workers generate net
Workers come in two types, high-productivity and low-productivity. High-productivity workers generate net revenue of $100,000 per year to their employers, and low-productivity workers generate net revenue of $50,000 a year. Individuals work for 4 years. Before they start working, workers have the opportunity to take a licensing exam. To pass the exam, a high-productivity worker would have to study nights, and the implicit cost would be $20,000. A low-productivity workers would have to study nights and weekends, and take a special test-taking course, for a total cost of $40,000. Assuming that workers are paid $50,000 per year in an alternative industry, what range of salaries can a firm offer to licensed workers to guarantee that only high-productivity workers seek licenses? (Assume that future payments are not discounted.)
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