1. Consider an economy with three types of workers that differ in their abilities a, = 1, az = 2 and az The probability of each type is 1/3. A perfectly competitive firm considers hiring the workers, but the productivity is private information only known to each worker. Once the workers are hired, the production function of the firm is y = a,L1 + ażL2 + a3L3, where L; is the amount of work done by a worker of type a;. The product y is sold at price 1. = 3 and in their reservation utilities, which are 0.5, 1 and 2.2, respectively. (a) Would the three types of workers accept the average salary? (b) Can the firm offer a salary that in equilibrium attracts only the types 1 and 2 of workers?
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- Each of two firms has one job opening. Suppose that (for reasons not discussed here but relating to the value of filling each opening) the firms offer different wages: firm i = 1,2 offers the wage wi. Imagine two workers, each of whom can apply to only one firm. The workers simultaneously decide whether to apply to firm 1 or to firm 2. If only one worker applies to a given firm, that worker gets the job; if both workers apply to one firm, the firm hires one worker at random (probability 0.5 for hiring worker 1 and probability 0.5 of hiring worker 2) and the other worker is unemployed (which has a payoff of zero). Suppose workers are risk neutral i.e., u(w) = w. Solve for the set of Nash equilibria of the workers normal-form game when 0.5w1 > w2. At equilibrium would a worker secure a job? ExplainUse graph to illustrate the matching of employers and employees under hedonic wage theory with risk of injury. Assume there are two employees of different types (A and B), and two employers of two different types (X and Y). Worker A maximizes utility along A2 by working for Employer X for WAX and risk level RAX. Worker B maximizes utility along B2 by working for Employer Y for high wage WBY and with high risk level RBY Please draw the indifference curves and the iso-profit curves with zero profit, point out the two tangent points that measure the matching points for both employers and employees. (Hint: use Risk of Injury as the horizontal axis.)A risk-neutral manager is attempting to hire a worker. All workers in the market are of identical quality but differ with respect to the wage at which they are willing to work. Suppose half of the workers in the labor market are willing to work for a salary of $40,000 and half will accept a salary of $38,000. The manager spends three hours interviewing a given worker and values this time at $300. The first worker the manager interviews says he will work only if paid $40,000. Should the firm manager make him an offer or interview another worker?
- There are 50 workers in the economy in which all workers must choose to work a safe or a risky job. When it comes to accepting a risky job, Worker 1’s reservation price is $5; worker 2’s reservation price is $6, worker 3's reservation wage is $7, and so on. Assume there are exactly 12 risky jobs. (a) What is the equilibrium wage differential between safe and risky jobs? Which workers will be employed at the risky firm? (b) Suppose now that an advertising campaign, paid for by the employers who offer risky jobs, stresses the excitement associated with “the thrill of injury,” and this campaign changes the attitudes of the work force toward being employed in a risky job. Worker 1 now has a reservation price of $1, worker 2’s reservation price is $2, and so on. There are still only 12 risky jobs. What is the new equilibrium wage differential? c) What is the maximum the firm should be willing to pay for its ad campaign?Suppose there are two types of people, high ability and low ability. A high-ability person's productivity is valued at wH = $100,000, while a low-ability person's productivity is valued at wL = $50,000. Assume that the employer does not know the ability of a job applicant, but knows that the probability of an applicant being high ability is 50%. Assume next that only high ability applicants can send a signal, i.e., obtain a degree. The employer pays the expected wage. i. What is the wage oer in a pooling equilibrium (no applicant attains a degree)? ii. What is the wage oer in a separating equilibrium (only high-ability applicants attain a degree)? iii. Suppose now both types can attain a degree, but it is costlier to attain for low-ability people and costs them cL = $60,000, while it costs high-ability people cH = $40,000. Is a separating equilibrium where only high-ability people send education as a signal possible? Explain.A firm's board of directors wants to maximize its profits. If the firm's manager puts in a high effort, the firm gets a high profit of 9 with probability 80%, but if the manager puts in a low effort, the firm gets a low profit of 4 with probability 80%. The utility functions of both the board of directors and the manager are identical and are simply u(b)-b. High effort for the manager costs 2. The manaаger has an outside wage of 1. Calculate the optimal wage schedule under high and low realized profits.
- 4. The following equation relates the natural log of wages, W, to risk, R, and a vector of covariates, X: lnW = bo +b1*R + C*X. lnW is the natural log of W. Assume that W = 30,000, b1 = 0.15 and the change in risk being considered is a 1 in 3,000 increase in the probability of death. Note also that dW/W = 0.15. A. What would an individual worker need to be paid to be willing to incur this 1 in 3,000 increased risk of death? B. What is the statistical value of a life, based upon this wage equation?Natasha has utility function u(I) = (10*I)0.5, where I is her annual income (in thousands). (a) Is she a risk loving, risk averse or risk neutral individual? She is [risk loving, risk adverse, risk neutral] , as her utility function is [concave, convex, linear] (b) Suppose that she is currently earning an income of $40,000 (I = 40) and can earn that income next year with certainty. She is offered a chance to take a new job that offers a 0.6 probability of earning $44,000 and a 0.4 probability of earning $33,000. She should [take, not take] the new job because her expected utility of (approximately) [18.27,19.82,20,20.95,21.14] is [greater than, less than, equal to] her current utility of [18.27,19.85,20,20.95,21.14] .Give typing answer with explanation and conclusion 1. If wH=100 and wL=36 and U(w)=w^1/2. Further, let the reservation utility be 7. (a) What is the minimum probability for which the wage earner accepts the contract? (b)Let p=3/4. What is the maximum cost of effort for which the tenant accepts the contract?
- Problem: Consider a state in which automobile drivers are divided equally into two types of drivers: careful and reckless. The average annual auto-insurance claim is $400 for a careful driver and $1,200 for a reckless driver. Suppose that the state adopts an insurance system under which all drivers are placed in a common pool and allocated to insurance companies randomly. An insurance company cannot refuse coverage to any consumer it is assigned, but a consumer who is unhappy with the insurance company has the option of being reassigned (randomly) to another. By law, each insurance company must charge the same price to all its customers (i.e. no price discrimination). Assume that the insurance market is perfectly competitive and that claims represent all the costs associated with provision of insurance. Predict the minimum price of auto insurance under two alternative policy scenarios given below. Show all of your work and explain your answers. A. Auto insurance is mandatory B. Auto…, and you are considering a self-employment opportunity that may pay $10,000 per year or $40,000 per year with equal probabilities. What certain income would provide the same satisfaction as the expected utility from the self-employed position? a) $22,500 b) $15,000 c) $27,500 d) $25,00A firm is considering adopting a plan in which it would pay employees less than their MRPL early in their careers and more than their MRPL late in their careers. For a typical worker at the firm MRPL = 10 + 0.1T, where T = the number of years which the worker has been employed at the firm and MRPL is measured in dollars per hour. The worker’s wage per hour is W = 8 + 0.2T. Assume that this wage is high enough to attract workers from alternative jobs, that the discount rate for the firm is zero, and that the expected tenure of a typical worker is 35 years. If workers retire after 35 years, will this plan be profitable for the firm? Explain. For how many years will the firm “underpay” it workers? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.