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Question1 If the firm cannot tell if an applicant is high or low quality (and if the firm knows the low quality applicant has an incentive to lie and say he is high quality), what should the firm do? O Give the undemanding job O compare the expected payoff of giving the demanding job with the expected payoff of giving the undemanding job O Give the applicant the demanding job O Dont hire Question2 In hiring, who is hurt by adverse selection? O The uninformed party and some of the informed parties O The uninformed party only. O Neither the informed nor the uninformed party O The informed party only Question3 Look at the second table of payoffs (on page 14 of the class notes). Would the firm prefer to have a low quality applicant in a demanding job or an undemanding job? O Undemanding because 4> 1 O Undemanding because 2 > 1 O Demanding because 3 > 2 O Undemanding because 4 2

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