Suppose workers can be divided into two groups: high and low skill workers. Let y be th number of years of college education of a worker. For workers in Group A (high skill workers) the cost of attaining an educational level y is CA(Y)=$25y; for workers in Group B (low skill workers) the cost of attaining an educatio level y is CB(y)=$65y. Employees will be offered $350 if they have y ≥ y*, where y* is an educational threshold determined by the employer. They will be offered $50 if they have y < y*. To reduce the cost of education, the government offers a subsidy to the workers. The government will give to each worker $5 for each year of education. In equilibrium, education can be used as a signal of the worker's true type if

Suppose workers can be divided into two groups: high and low skill workers. Let y be th number of years of college education of a worker. For workers in Group A (high skill workers) the cost of attaining an educational level y is CA(Y)=$25y; for workers in Group B (low skill workers) the cost of attaining an educatio level y is CB(y)=$65y. Employees will be offered $350 if they have y ≥ y, where y is an educational threshold determined by the employer. They will be offered $50 if they have y < y*. To reduce the cost of education, the government offers a subsidy to the workers. The government will give to each worker $5 for each year of education. In equilibrium, education can be used as a signal of the worker's true type if

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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QUESTION 16 Suppose workers can be divided into two groups: high and low skill workers. Let y be the number of years of college education of a worker. For workers in Group A (high skill workers) the cost of attaining an educational level y is CÃ(y)=$25y; for workers in Group B (low skill workers) the cost of attaining an educational level y is CB(y)=$65y. Employees will be offered $410 if they have y ≥ y*, where y* is an educational threshold determined by the employer. They will be offered $50 if they have y y* z
For Group A the cost of attaining an educational level y is CA(y) = $6,000y and for Group B the cost of attaining that level is CB(y) = $10,000y. Employees will be offered $50,000 if they have where y* is an education threshold determined by the employer. They will be offered $130,000 if they have An employer who only wants to hire individuals who find learning less costly can do so by choosing y* to be anywhere between:
Imagine that the wage-schooling locus is given by w(s)=s^(1/3). What will be the optimal level of education for an individual to take if next period’s earnings in any given time are worth 95% of current earnings for that individual? Answer is s=20/57 I need step by step calculations
In order to make a hiring decision, a manger must: Compare wage rate with MPL. If Wage rate is equal to MPL then hire Compare wage rate with MPL. If wage rate is less than MPL then hire. Compare wage rate with MPL. If wage rate is greater than MPL then hire. Compare wage rate with MRP. If wage rate is equal to MRP then hire Compare wage rate with MRP. If wage rate is lower than MRP then hire.
Suppose there are two types of workers. Type 1 workers have a marginal product of labor (MPL) = 1. That is, if a firm hires an extra Type I worker, that worker will produce 1 extra unit of output. Type II workers have a MPL = 2. The firm can sell each extra unit of output for P = $12,000. Firms are unable to identify whether or not a worker is Type I or Type Il unless the worker sends a signal of what type they are. The signal that workers can send is a level of education, e. The firm adopts the following hiring strategy: If e >e* then offer the worker a wage rate equal to $24,000. If e < e* then offer the worker a wage rate equal to $12,000. The cost to Type I workers of getting education level e is $4000*e. The cost to Type II workers of getting education level e is $2000*e. If the firm sets e* = 8, which of the following statements is true? O Type I workers will not get e*, but Type II workers will get e*, which means there is a separating equilibrium. O Neither type of workers will…
The value of a worker’s marginal product is $40 per hour for high- ability workers and $10 per hour for low-ability workers. The preferences of high-ability workers correspond to the utility function UH(E,W)=W−5E, and the preferences of low-ability workers correspond to the utility function UL(E,W)=W−10E. By law, everyone is required to attend at least five years of school. Two-thirds of the population has low ability, and one-third has high ability. What can you say about the educational attainment of each type of worker in a separating equilibrium, and in a pooling equilibrium? Are workers better off with the most efficient separating equilibrium, or with the most efficient pooling equilibrium? Demonstrate your answer by using appropriate schedules.
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Aliyah is preparing to expand her IT consulting company. The current market rate for IT professionals is $58,000 per year. Each employee she hires will also require a computer and equipment that costs $6,000 per employee annually. Hiring more employees means that Aliyah can provide consulting services to more clients each year. Each client Aliyah has will pay her $15,000 per year. The number of clients Aliyah can take on depends on the number of workers she hires as shown in the accompanying table. What is the marginal cost and marginal benefit of hiring each worker? Using the Rational Rule to maximize her economic surplus, how many workers should Aliyah hire? Number of workers Clients per year 0 0 1 11 2 20 3 27 4 32
(Harder) Can you come up with gross profit levels I and II such that for the unobservable effort case the principal will implement e=1 (that is will offer the optimal wage schedule for e=1) if there is no limited liability, but will implement e=0 when there is limited liability. For the values of gross profit levels you calculate, which effort level is socially optimal (which effort level would be implemented when effort is observable). Based on your answer, is it possible to have lower social surplus/welfare because of asymmetric information?