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Suppose that low-productivity workers all have marginal products of 10 and high- productivity workers all have marginal products of 12. The community has equal numbers of each type of worker. A firm cannot directly tell the difference between the two kinds of workers. Even after it has hired them, it won't be able to monitor their work closely enough to determine which workers are of which type. The local community college offers a course in microeconomics. High-productivity workers think taking this course is as bad as a wage cut of $5, and low-productivity workers think it is as bad as a wage cut of $9. There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers are paid $11. There is a separating equilibrium in which high-productivity workers take the course and are paid $17 and low-productivity workers do not take the course and are paid $10. There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers do not take the course and are paid $10. There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $11. There is no separating equilibrium and no pooling equilibrium.

Suppose that low-productivity workers all have marginal products of 10 and high- productivity workers all have marginal products of 12. The community has equal numbers of each type of worker. A firm cannot directly tell the difference between the two kinds of workers. Even after it has hired them, it won't be able to monitor their work closely enough to determine which workers are of which type. The local community college offers a course in microeconomics. High-productivity workers think taking this course is as bad as a wage cut of $5, and low-productivity workers think it is as bad as a wage cut of $9. There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers are paid $11. There is a separating equilibrium in which high-productivity workers take the course and are paid $17 and low-productivity workers do not take the course and are paid $10. There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers do not take the course and are paid $10. There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $11. There is no separating equilibrium and no pooling equilibrium.

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter18: Asymmetric Information
Section: Chapter Questions
Problem 18.7P
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Suppose that low-productivity workers all have marginal products of 10 and high- productivity workers all have marginal products of 12. The community has equal numbers of each type of worker. A firm cannot directly tell the difference between the two kinds of workers. Even after it has hired them, it won't be able to monitor their work closely enough to determine which workers are of which type. The local community college offers a course in microeconomics. High-productivity workers think taking this course is as bad as a wage cut of $5, and low-productivity workers think it is as bad as a wage cut of $9. There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers are paid $11. There is a separating equilibrium in which high-productivity workers take the course and are paid $17 and low-productivity workers do not take the course and are paid $10. There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers do not take the course and are paid $10. There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $11. There is no separating equilibrium and no pooling equilibrium.
Transcribed Image Text:Suppose that low-productivity workers all have marginal products of 10 and high- productivity workers all have marginal products of 12. The community has equal numbers of each type of worker. A firm cannot directly tell the difference between the two kinds of workers. Even after it has hired them, it won't be able to monitor their work closely enough to determine which workers are of which type. The local community college offers a course in microeconomics. High-productivity workers think taking this course is as bad as a wage cut of $5, and low-productivity workers think it is as bad as a wage cut of $9. There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers are paid $11. There is a separating equilibrium in which high-productivity workers take the course and are paid $17 and low-productivity workers do not take the course and are paid $10. There is a separating equilibrium in which high-productivity workers take the course and are paid $12 and low-productivity workers do not take the course and are paid $10. There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $11. There is no separating equilibrium and no pooling equilibrium.
In Rustbucket, Michigan, there are 200 used cars for sale, half of them are good and half of them are lemons. Owners of lemons are willing to sell them for $200. Owners of good used cars are willing to sell them for prices above $1,100 but will keep them if the price is lower than $1,100. There is a large number of potential buyers who are willing to pay $500 for a lemon and $1,500 for a good car. Buyers can't tell good cars from bad, but original owners know. There will be an equilibrium in which all used cars sell for $1,000. The only equilibrium is one in which all used cars on the market are lemons and they sell for $500. There will be an equilibrium in which lemons sell for $200 and good used cars sell for $1,100. There will be an equilibrium in which lemons sell for $500 and good used cars sell for $1,500. There will be an equilibrium in which all used cars sell for $650.
Transcribed Image Text:In Rustbucket, Michigan, there are 200 used cars for sale, half of them are good and half of them are lemons. Owners of lemons are willing to sell them for $200. Owners of good used cars are willing to sell them for prices above $1,100 but will keep them if the price is lower than $1,100. There is a large number of potential buyers who are willing to pay $500 for a lemon and $1,500 for a good car. Buyers can't tell good cars from bad, but original owners know. There will be an equilibrium in which all used cars sell for $1,000. The only equilibrium is one in which all used cars on the market are lemons and they sell for $500. There will be an equilibrium in which lemons sell for $200 and good used cars sell for $1,100. There will be an equilibrium in which lemons sell for $500 and good used cars sell for $1,500. There will be an equilibrium in which all used cars sell for $650.
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