1. Consider an economy with three types of workers that differ in their abilities a, = 1, az = 2 and az The probability of each type is 1/3. A perfectly competitive firm considers hiring the workers, but the productivity is private information only known to each worker. Once the workers are hired, the production function of the firm is y = a,L1 + ażL2 + a3L3, where L; is the amount of work done by a worker of type a;. The product y is sold at price 1. = 3 and in their reservation utilities, which are 0.5, 1 and 2.2, respectively. (a) Would the three types of workers accept the average salary? (b) Can the firm offer a salary that in equilibrium attracts only the types 1 and 2 of workers?

1. Consider an economy with three types of workers that differ in their abilities a, = 1, az = 2 and az The probability of each type is 1/3. A perfectly competitive firm considers hiring the workers, but the productivity is private information only known to each worker. Once the workers are hired, the production function of the firm is y = a,L1 + ażL2 + a3L3, where L; is the amount of work done by a worker of type a;. The product y is sold at price 1. = 3 and in their reservation utilities, which are 0.5, 1 and 2.2, respectively. (a) Would the three types of workers accept the average salary? (b) Can the firm offer a salary that in equilibrium attracts only the types 1 and 2 of workers?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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