8. Information Asymmetry (lemons' market) In some industries it is very difficult to monitor the performance of individual workers. In others it is quite easy. Let us consider an industry in which monitoring is difficult. There are two kinds of workers: some are "capables" and some are "klutzes." Half of all workers in the labor force are capables and half are klutzes. A capable will produce $1600 of output per week for his employer. A klutz will produce only $400 of output per week. Capables and klutzes look and talk just the same. Capables know they are capable and klutzes know that they. are klutzes. But if you ask, everybody will claim to be capable. Both capables and klutzes have the option of taking a job in another industry where performance can be closely monitored. In the other industry where monitoring the performance of individual workers is easy, capable workers could earn $700 per week and klutzes could earn only $200 per week. a) In the industry where monitoring is difficult, suppose that a firm has the pessimistic belief that the only workers it can hire are klutzes. What is the highest wage that this firm would be willing to pay per week to hire a worker?

8. Information Asymmetry (lemons' market) In some industries it is very difficult to monitor the performance of individual workers. In others it is quite easy. Let us consider an industry in which monitoring is difficult. There are two kinds of workers: some are "capables" and some are "klutzes." Half of all workers in the labor force are capables and half are klutzes. A capable will produce $1600 of output per week for his employer. A klutz will produce only $400 of output per week. Capables and klutzes look and talk just the same. Capables know they are capable and klutzes know that they. are klutzes. But if you ask, everybody will claim to be capable. Both capables and klutzes have the option of taking a job in another industry where performance can be closely monitored. In the other industry where monitoring the performance of individual workers is easy, capable workers could earn $700 per week and klutzes could earn only $200 per week. a) In the industry where monitoring is difficult, suppose that a firm has the pessimistic belief that the only workers it can hire are klutzes. What is the highest wage that this firm would be willing to pay per week to hire a worker?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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