Quiz 4A-Micro II

Quiz 4A-Micro II - BSc II-Sec A Microeconomics Spring 2011...

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Microeconomics Spring 2011 Quiz 4B Lahore School of Economics Microeconomics II BSc 2 – Section A Quiz 4A – Total Points: 40 1. Suppose that only high quality workers can signal their ability by attending a  technical school at cost  c . Wages for highly productive employees are  w h ; wages for  low productivity workers are  w l . If initially a pooling equilibrium occurs, can the  firm alter the cost or payoffs to generate a separating equilibrium? How? (5 points) If the initial solution is a pooling equilibrium, where all workers are paid the average wage, it must be that the wage premium given to technical school graduates is not sufficient to get them to attend the school. The firm could either increase the salary offered to graduates or to subsidize the cost of schooling by offering a hiring bonus such that w h c w l . Such a strategy would only pay if the difference between value of marginal product for high productivity workers versus low productivity workers was in excess of the wage premium required to get the high productivity workers to attend the school. Refer to the following diagram for the next two questions
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This note was uploaded on 02/13/2012 for the course ECON 121 taught by Professor Adam during the Spring '11 term at Bunker Hill.

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Quiz 4A-Micro II - BSc II-Sec A Microeconomics Spring 2011...

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