3) Suppose a labor market is composed of studs and duds. Studs are worth $50K and duds are worth $25K. Employees know their worth, but employers do not. Employers are willing to pay a $5K premium for both types of employees. What is the maximum proportion of duds the market can sustain to avoid adverse selection?

3) Suppose a labor market is composed of studs and duds. Studs are worth $50K and duds are worth $25K. Employees know their worth, but employers do not. Employers are willing to pay a $5K premium for both types of employees. What is the maximum proportion of duds the market can sustain to avoid adverse selection?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.9P

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