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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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![1. Consider an economy with three types of workers that differ in their abilities a =
2 and az
1,
3 and in their reservation utilities, which are 0.5, 1 and 2.2, respectively.
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.
(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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbdac785b-10ce-4d67-af19-820f266202dd%2F444dba54-f3b7-4028-89ec-cd24b038ce4e%2F8ajeoqw_processed.png&w=3840&q=75)
Transcribed Image Text:1. Consider an economy with three types of workers that differ in their abilities a =
2 and az
1,
3 and in their reservation utilities, which are 0.5, 1 and 2.2, respectively.
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.
(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?
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