Let's assume the city of Norman is comprised of high-productivity works (where their marginal product of labor is 100) and low-productivity workers (where their marginal product of labor is 40). (a) If the firm had perfect information, what would they pay each worker? (b) Now, let's assume they have asymmetric information. The firm assumes that Norman is made up of 70% high productivity workers. Calculate the competitive wage. (c) Let's now assume the firm will offer the high-productivity wage to any worker that obtains some e level of education. Further assume that the cost of education is now $6 per year for the high productivity worker and $10 per year for the low-productivity worker. What is the separating equilibrium?

Let's assume the city of Norman is comprised of high-productivity works (where their marginal product of labor is 100) and low-productivity workers (where their marginal product of labor is 40). (a) If the firm had perfect information, what would they pay each worker? (b) Now, let's assume they have asymmetric information. The firm assumes that Norman is made up of 70% high productivity workers. Calculate the competitive wage. (c) Let's now assume the firm will offer the high-productivity wage to any worker that obtains some e level of education. Further assume that the cost of education is now $6 per year for the high productivity worker and $10 per year for the low-productivity worker. What is the separating equilibrium?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.6IP

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