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.
Chapter18: Asymmetric Information
Section: Chapter Questions
Problem 18.7P
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