pset6_s10 - Economics 217 Spring 2010 Problem Set 6...

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Economics 217 Spring 2010 P r o b l e m S e t 6 (Answers to due in class Tuesday, April 13th, to be discussed questions 1-2 Friday, April 16th; ) please denote which recitation you plan to attend on Friday 1. Suppose there are 2 types of workers: A types and B types. A types produce revenue of 20 with probability .25 and revenue of 40 with probability .75. B types produce revenue of 20 with probability .75 and revenue of 40 with probability .25. All workers have a utility function given by . Workers of type A must be provided with expected utility of at least 3 YÐA+1/ÑœÐA+1/Ñ Þ& in order to take the job for work, whereas workers of type B must only be provided with expected utility of 1. You are a potential employer that cares only about expected profits. a) Suppose you can distinguish A-type workers from B-types. What would be your optimal wage contract with each type of worker? What would be expected profits per A-type worker? What would it be per each B-type.
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This note was uploaded on 04/19/2010 for the course ECO 231W taught by Professor Joshuakinsler during the Spring '10 term at Rochester.

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pset6_s10 - Economics 217 Spring 2010 Problem Set 6...

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