Question 13Consider a market in which there are two types of workers L and H. Each type of worker has a different level of productivity, but that productivity is unobservable ex ante to potentialemployers. Before seeking employment at a firm in the market, all workers can (if they choose) get some level of education e. This choice of education e is observable to all, includingpotential employers. Assume that the market is competitive, so expected profits must be zero in equilibrium.The L-type workers have a productivity of 2 if they work for a firm in the market. They also have an outside option of 2. The utility function of the L-type workers UL - wL- eL, where wl isthe wage received and eL is the level of education they obtain.The H type worker has an outside option of 2 and a productivity of 4 if they are employed by a firm in the market. The utility function for a H-type worker is UH=wH - (%)eH, where wH isthe wage paid to a H-type and eH is the education they choose to get.What is the maximum level of education the H-types will choose to get in any separating equilibrium?O 1/2O 1/402O None of the other answers are correct.044

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What is the maximum level of education the H-types will choose to get in any separating equilibrium?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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