There are two types of workers in financial industry: A (able) type and C (challenged) type. Potential employers in finance will pay $160,000 a year to a type A and $60,000 to a type C. Unfortunately, employers cannot observe the worker's type while each worker knows his or her own type. However, a market research informs all employers and workers that 60% of the population is type A and 40% is type C. a) Assume that employers in finance treat every applicant as a random draw from the population and pay all the same salary. Then, the pooling salary is $ (Hint: omit the thousands separator). b) Alternative employment opportunities outside of the financial industry yield the A types a salary of $125,000 and the C types a salary of $30,000. If the pooling salary in a) is offered to any applicant in finance, type workers will leave the financial industry and only type workers will stay in the industry. When this continues, the salary in finance will eventually reduce to $ (Hint: omit the thousands separator).
There are two types of workers in financial industry: A (able) type and C (challenged) type. Potential employers in finance will pay $160,000 a year to a type A and $60,000 to a type C. Unfortunately, employers cannot observe the worker's type while each worker knows his or her own type. However, a market research informs all employers and workers that 60% of the population is type A and 40% is type C. a) Assume that employers in finance treat every applicant as a random draw from the population and pay all the same salary. Then, the pooling salary is $ (Hint: omit the thousands separator). b) Alternative employment opportunities outside of the financial industry yield the A types a salary of $125,000 and the C types a salary of $30,000. If the pooling salary in a) is offered to any applicant in finance, type workers will leave the financial industry and only type workers will stay in the industry. When this continues, the salary in finance will eventually reduce to $ (Hint: omit the thousands separator).
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
Chapter19: The Problem Of Adverse Selection
Section: Chapter Questions
Problem 19.4IP
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**Understanding Salary Structures in the Financial Industry**
There are two types of workers in the financial industry: A (able) type and C (challenged) type. Potential employers in finance will pay $160,000 a year to a type A and $60,000 to a type C. Unfortunately, employers cannot observe the worker’s type while each worker knows his or her own type. However, a market research informs all employers and workers that 60% of the population is type A and 40% is type C.
**a)** Assume that employers in finance treat every applicant as a random draw from the population and pay all the same salary. Then, the pooling salary is $ _______ (Hint: omit the thousands separator).
**b)** Alternative employment opportunities outside of the financial industry yield the A types a salary of $125,000 and the C types a salary of $30,000. If the pooling salary in (a) is offered to any applicant in finance, type ______ workers will leave the financial industry and only type ______ workers will stay in the industry. When this continues, the salary in finance will eventually reduce to $ ______ (Hint: omit the thousands separator).
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