Times are tough in the labor market for new lawyers. In this market there are two types of lawyer, the high-skill kind, and the low-skill kind. The fraction of low-skill lawyers is X, where as usual, X is between O and 1. The high-skill kind will bring in business to a law firm worth 86,760, while the low-skill kind only brings in 55,557 dollars worth of business to a law firm. Unfortunately, it's impossible to tell whether a potential hire is a high-skill or a low-skill worker until it's too late and they have already been hired. Legal firms are, for various arcane reasons, all risk-neutral. Fortunately, the legal association has introduced a new certification exam, and they will let potential lawyers take this exam for the low, low price of 7,879. How tremendously generous of them. High-skill workers can easily pass this exam without too much effort, but low-skill workers will have to take an additional preparation course, which will cost them 43,221. What is the highest X can be before we have only the separating equilibrium for these lawyers?

Times are tough in the labor market for new lawyers. In this market there are two types of lawyer, the high-skill kind, and the low-skill kind. The fraction of low-skill lawyers is X, where as usual, X is between O and 1. The high-skill kind will bring in business to a law firm worth 86,760, while the low-skill kind only brings in 55,557 dollars worth of business to a law firm. Unfortunately, it's impossible to tell whether a potential hire is a high-skill or a low-skill worker until it's too late and they have already been hired. Legal firms are, for various arcane reasons, all risk-neutral. Fortunately, the legal association has introduced a new certification exam, and they will let potential lawyers take this exam for the low, low price of 7,879. How tremendously generous of them. High-skill workers can easily pass this exam without too much effort, but low-skill workers will have to take an additional preparation course, which will cost them 43,221. What is the highest X can be before we have only the separating equilibrium for these lawyers?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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