Question

2, (3 points) 10% of the population are low-productivity workers and 90% of the popula- tion are high-productivity workers. The present value of lifetime productivity for low- productivity workers is $150,000 and the present value of lifetime productivity for high- productivity workers is $200,000. It costs $30,000 for a low-productivity worker to go to school. (a) (1 point) Calculate how much the employer would pay in a pooling equilibrium? (b) (1 point) In a separating equilibrium, the firm is requiring that all workers have 4 years of school. Verify that the low types will not go to school. (c) (1 point) Calculate a range of school costs for high types such that this is a true equilibrium

Answer 1

a) In pooling balance, all of the experts will send a comparative sort of sign and business pays comparable wages to each worker. To figure this we have to consider the openness of workers in the economy.

Thusly, in pooling concordance business should need to pay

10% of 150000 + 90% of 200000 = 15000 + 180000 = 195000

b) In secluding concordance all experts send an other sign that infers low effectiveness worker will send the low sign and thusly will get low remuneration and high benefit worker will send the high sign and thusly will get a high pay. For this circumstance, the low authority will get 150000 and high sorts will get 200000. By and by the school cost for the low worker is 30000.

So convincing pay will be wage less coaching cost.

=150000-30000= 120000. So in separating equilibria, they are getting low remuneration so they will pick pooling equilibria and won't go to class.

By and by, High sorts worker needs to go for quite a while of coaching. Because of authentic parity, their compensation should not be not actually low sort authorities.

Along these lines, effective wage= Pay + Training cost

150000= 200000+ E

E= 200000-150000= 50000

or then again,

120000= 200000 + E

E= 200000-120000 = 80000 In this way, E range will be (50000, 80000)