Suppose there are two types of persons: high-ability and low-ability. A particular diploma costs a high-ability person $8,000 and costs a low-ability person $20,000. Firms wish to use education as a screening device where they intend to pay $25,000 to workers without a diploma and $ K to those with a diploma. In what range must K be to make this an effective screening device?

Suppose there are two types of persons: high-ability and low-ability. A particular diploma costs a high-ability person $8,000 and costs a low-ability person $20,000. Firms wish to use education as a screening device where they intend to pay $25,000 to workers without a diploma and $ K to those with a diploma. In what range must K be to make this an effective screening device?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter16: Bargaining

Section: Chapter Questions

Problem 16.6IP

See similar textbooks

Similar questions

Suppose there are two types of persons: high-ability and low-ability. Firms wish to use education as a screening device where they intend to pay $25,000 to workers without a diploma and $35,000 to those with a diploma. Assume it costs $8,000 of for a high-ability person to obtain a diploma. If is cost $10,000 for a low-ability person to obtain a diploma, can the firm use diploma to screen low ability from high ability worker. Explain and support your answer using math. How would your answer change it the cost of obtaining a diploma for a low productivity person were to increase to $15,000.
Many police officer positions require the applicant to have a college degree, even though the tasks of a police officer rarely call upon college course material. Suppose two individuals who do not have college degrees are considering applying to the police force. Ginny is considering applying for an officer position and plans on working for the police force for a period of time, over which she would earn approximately $500,000 (in present discounted value) in earnings while in the position. Kenji is also considering applying, and plans on working as an officer for a period of time, over which he would earn approximately $10,000 (in present discounted value) in lifetime earnings while in the position. Also suppose that present value of obtaining a college degree, which is required to submit a job application to the police department, is $100,000. Use the following table to indicate whether each individual would likely apply, or not, given the cost of obtaining a college degree.…
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…
Imagine a signaling model where there are two types of workers, low-productivity workers with a productivity of 10, and high-productivity workers with a productivity of 30. The proportion of low-productivity workers is .5. Firms are competitive and obtain profit equal to the productivity of the worker they hire. Workers can obtain one of three levels of education: e1, e2, and e3. Workers get utility equal to their wage minus the cost of education. Wages must be between 10 and 30. The cost of getting an education for low-productivity workers is e1 = 0, e2 = 9, e3 = 18. The cost of getting an education for high-productivity workers is e1 = 0, e2 =4, e3 = 8. Are there any separating equilibria in this model? If so, find them, if not show why they do not exist.
Imagine a signaling model where there are two types of workers, low-productivity workers with a productivity of 10, and high-productivity workers with a productivity of 30. The proportion of low-productivity workers is .5. Firms are competitive and obtain profit equal to the productivity of the worker they hire. Workers can obtain one of three levels of education: e1, e2, and e3. Workers get utility equal to their wage minus the cost of education. Wages must be between 10 and 30. The cost of getting an education for low-productivity workers is e1 = 0, e2 = 9, e3 = 18. The cost of getting an education for high-productivity workers is e1 = 0, e2 =4, e3 = 8. A) Are there any pooling equilibria in this model? If so find all of them, if not, show why they do not exist.
For Group A the cost of attaining an educational level y is CA(y) = $6,000y and for Group B the cost of attaining that level is CB(y) = $10,000y. Employees will be offered $50,000 if they have where y* is an education threshold determined by the employer. They will be offered $130,000 if they have An employer who only wants to hire individuals who find learning less costly can do so by choosing y* to be anywhere between:
True or false 1. A perceived disadvantage of Rawls's social justice theory is that it does not consider the fact that people would not want to maximize benefits for the least advantaged persons 2. Ethical relativism is a moral theory which holds that individuals must decide what is ethical based on their own feelings about what is right and wrong. 3. Utilitarianism is a moral theory that chooses the greatest good to society but does not mean the greatest good for the greatest number of people. 4. According to Rawls's “social justice” theory, a person who is in a state of "veil of ignorance" is best fit to select the fairest possible ethical principles. Please help, & thank you!
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?
Ten workers work jointly on a project. All 10 workers are equally skilled. The total value of the output produced is $100 times the sum of the number of hours worked by all 10 workers. Each worker's utility is equal to his income minus the square of the number of hours he works. Each worker is selfish. The employers have no way of keeping track of any individual's work effort, so they decide to let each person work as long as he wants to and they divide the total value of the output equally among the workers. How much income will each worker get?
1. Occupational licensing is an example of an entry barrier that improves a country's standard of living. Group of answer choices True False 2. Network externalities refer to the situation where the usefulness of a product increases with the number of consumers who use it. Group of answer choices True False
A medical researcher is trying to cure a disease. For each unit of effort she puts into her work, she generates a utility benefit of 10 for each member of society. There are 1,000 people in society besides the medical researcher. The medical researcher doesn’t care about other people. She is in it for the glory. For each unit of effort she puts into her work, she gets a utility benefit of 1000 (which is inclusive of the 10 that she gets for being a member of society, plus a payoff of 990 in glory). If she exerts effort e, she also suffers cost e^2. (a) The medical researcher’s payoff from exerting effort e is 1000e − e^2. What level of effort, e∗, will she exert? (b) Suppose a policymaker who was a committed utilitarian (including caring about the medical researcher’s glory, since the medical researcher cares about it) was to choose the level of effort the medical researcher exerts. That policymaker would add up the total utility in society (including the medical researcher’s utility)…
A medical researcher is trying to cure a disease. For each unit of effort she puts into her work, she generates a utility benefit of 10 for each member of society. There are 1,000 people in society besides the medical researcher. The medical researcher doesn’t care about other people. She is in it for the glory. For each unit of effort she puts into her work, she gets a utility benefit of 1000 (which is inclusive of the 10 that she gets for being a member of society, plus a payoff of 990 in glory). If she exerts effort e, she also suffers cost e^2. (a) Suppose a policymaker who was a committed utilitarian (including caring about the medical researcher’s glory, since the medical researcher cares about it) was to choose the level of effort the medical researcher exerts. That policymaker would add up the total utility in society (including the medical researcher’s utility) from any given level of effort and choose the level of effort that maximizes that aggregate utility. i. What (social)…