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Unformatted text preview: choose it) the cost was 2 c . 5. A rm employs two types of workers, I and II. Type I generate revenue of 100,000 and Type II generate revenue of 200,000. If the rm could observe type they would pay Type I workers 100,000 and Type II workers 200,000. However, they can not observe type but can observe years of education, y . The rm knows that the cost of one year of education for a Type I worker is 40,000 and for a Type II worker is 20,000. For what values of y is their a separating equilibrium in which Type 1 workers obtain less than y years of education and are paid 100,000 while Type II workers obtain at least y years of education and are paid 200,000. (a) y 5 (b) 2 . 5 y 5 (c) 2 . 5 y 10 (d) y 2 . 5 1...
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