assume there are two types of workers, low- and high-ability, and let 0 = 0.25 be the proportion of high-ability workers in the population. Assume their marginal productivity and, therefore, their wages are wh = $20 and wl = $16, and that both types can use college education to signal high ability. The cost of college education for low-ability workers is cl = $5 whereas the cost for high-ability workers is ch = $2. How much do firms pay to each worker type when they cannot differentiate them? (a) wh = $20 and wl = $16 (b) wh = $2 and wl = $5 (c) w = $17 (d) w = $18
assume there are two types of workers, low- and high-ability, and let 0 = 0.25 be the proportion of high-ability workers in the population. Assume their marginal productivity and, therefore, their wages are wh = $20 and wl = $16, and that both types can use college education to signal high ability. The cost of college education for low-ability workers is cl = $5 whereas the cost for high-ability workers is ch = $2. How much do firms pay to each worker type when they cannot differentiate them? (a) wh = $20 and wl = $16 (b) wh = $2 and wl = $5 (c) w = $17 (d) w = $18
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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assume there are two types of workers, low- and high-ability, and
let 0 = 0.25 be the proportion of high-ability workers in the population. Assume their marginal
productivity and, therefore, their wages are wh = $20 and wl = $16, and that both types can
use college education to signal high ability. The cost of college education for low-ability workers
is cl = $5 whereas the cost for high-ability workers is ch = $2.
How much do firms pay to each worker type when they cannot differentiate them?
(a) wh = $20 and wl = $16
(b) wh = $2 and wl = $5
(c) w = $17
(d) w = $18
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