roywchen_12608_1534Econ_398_Practice_Exam_3

# roywchen_12608_1534Econ_398_Practice_Exam_3 - Practice Exam...

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Practice Exam 3 (1 – 3) Mckouwski & Miller, a consulting firm wants to hire some workers for its vacant positions. There are 2 types of jobs: challenging and mundane and two types of workers: highly productive and less productive. In a challenging job, the highly productive worker produces 180 units, and the less productive worker produces 100 units. In a mundane job, both produce 120 units. The labor market is competitive and the workers get what they produce on average (i.e., firms make zero profit). The firm cannot tell whether an applying candidate has high productivity or low productivity, but they can observe education level. The workers can use education to signal their productivity (though education has no effect on productivity). The cost of acquiring education level y is y/3 for more productive workers and y for less productive worker. Suppose that the population consists of 50% highly productive workers and 50% less productive workers. 1. Suppose, the firm believes that all with education level y or more are high productivity workers and all with education less than y are low productivity workers. What is the range of y that will achieve separation? a. 0 ≤ y ≤ 180 b. 80 ≤ y ≤ 120 c. 0 ≤ y ≤ 60 d. 120 ≤ y ≤ 180 e. 60 ≤ y ≤ 180 2. Now, suppose the firm believes that although education level y or more implies high productivity, with education less than y a worker could be high productivity or low productivity. What is the lowest value of y that would sustain a pooling equilibrium where no one gets education?

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