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ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
Determine a general condition that makes workers want to separate themselves using education
as a signal. That is, find a condition that makes high-ability workers want to go to college while
low-ability workers do not. Given the wages and costs for both types of workers (wh = 20,wl =16,ch = 2, and cl = 5) and the proportion of high-ability workers in the population (0 = 0.25),
does the condition hold? What wages are paid to each type of worker?
(a) The condition holds; firms pay wh = $20 and wl = $16
(b) The condition holds; firms pay wh = $18 and wl = $11
(c) The condition does not hold; firms pay wh = $20 and wl = $16
(d) The condition does not hold; firms pay wh = wl = w = $17
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