hw3ansEC 480 - ECN 4890 Spring 2006 Answers to Homework 3...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECN 4890 Spring 2006 Answers to Homework 3 Suppose that there are two types of workers: “Quicks” and “Slows”. Quicks can earn $36 per hour in alternative employment, while Slows can earn $20. Quicks can produce 20 widgets per hour, while Slows can produce 8 widgets per hour. a. Which is the best type of worker for the firm to hire? Explain. Calculate $ per output for each: Quicks = $36/20 = $1.80 and Slows = $20/8 = $2.50. So we should hire the Quicks because they are more cost effective. b. Suppose that firms cannot distinguish between workers but each worker knows if he is a Quick or a Slow. If the firm advertises that it is willing to pay $36 per hour what will happen? Both Quicks and Slows will apply for the job and the firm will be unable to distinguish between them. Instead of simply offering $36 per hour, your firm wants to implement a probationary period with monitoring. Monitoring is expensive so you propose random monitoring where 8 out of every 10 workers will get monitored during the
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

hw3ansEC 480 - ECN 4890 Spring 2006 Answers to Homework 3...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online