Select the TWO equations that characterize the wages meant for a HIGH productivity worker (GOOD type) in a potential separating equilibrium? Select 2 correct answer(s) 3ws + WF = 576 √ws + √√wF ws+wF = 288 O√ws + √WF = 24 = = Ows+wF 03₁√ws + √√wF= 64 03√ws + √√wF 512 32 = 48 3ws+wF = 1024
Select the TWO equations that characterize the wages meant for a HIGH productivity worker (GOOD type) in a potential separating equilibrium? Select 2 correct answer(s) 3ws + WF = 576 √ws + √√wF ws+wF = 288 O√ws + √WF = 24 = = Ows+wF 03₁√ws + √√wF= 64 03√ws + √√wF 512 32 = 48 3ws+wF = 1024
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Select the TWO equations that characterize the wages meant for a HIGH
productivity worker (GOOD type) in a potential separating equilibrium?
Select 2 correct answer(s)
3ws + WF
= 576
=
√ws + √√wF
ws+wF = 288
Ⓒ3ws + WF
=
ws+√√√wF= 32
ws+wF = 512
3√ws + √wF
13√√ws + √√wF
=
24
=
=
64
48
1024

Transcribed Image Text:Competing_risk neutral principals seek to attract workers. I he task the worker
performs when hired generates an output that is either worth €S or €F, with S larger
than F.
The outcome is verifiable so that contracts take the form of wages (WS, WF),
whereby Wg is paid when the output is worth €S and WF is paid otherwise.
S
The workers are risk averse and they differ in their ability.
A worker's ability can be high (GOOD type) or low (BAD type). The variable Pt
denotes the probability with which a worker with ability produces an output worth
t
€S. Therefore, a worker with ability t produces an output with an expected value
Vt = (ptS+ (1 - pt)F). And the overall expected profits gathered by
the principal who hires this type are
Ent = -
Vt ptws (1 — pt)wF.
Finally, a worker with ability t has an expected utility given by
EUt = Pt√√ws + (1 − Pt) √/wF
The following table gives the values for Pt and Vt for each type.
Value for Vt
Good type
Bad type
Value for Pt
3/4
1/2
256
144
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