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Question 3. Signalling

Suppose there are two types of workers with High and Low productivity

High-productivity worker's marginal product is 50

Low- productivity worker's marginal product is 20

a) Suppose 50% of workers have high productivity, if the employer cannot identify the type of worker (pools them together), what would the wage rate be?

b) Will high productivity workers be willing to work for this wage? Justify your answer.

c) Will low productivity workers be willing to work for this wage? Justify your answer.

d) Suppose workers can acquire education (e) which cost 10euro per unit for high productivity workers and 20 euros for low productivity workers. For what range of levels of e can the high productivity workers signal their ability

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Darryn D'Souza
Darryn D'SouzaLv10
28 Sep 2019

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Related questions

Suppose there are two types of workers. Type 1 workers have a marginal product of labor (MPL) = 1. That is, if a firm hires an extra Type I worker, that worker will produce 1 extra unit of output. Type II workers have an MPL = 2. The firm can sell each extra unit of output for P = $10,000.

Firms are unable to identify whether or not a worker is a Type I or Type II unless the worker sends a signal of what type they are. The signal that workers can send is a level of education, e. The firm adopts the following hiring strategy:

If e > e* then offer the worker a wage rate equal to $20,000.

If e < e* then offer the worker a wage rate equal to $10,000.

The cost to Type I workers of getting education level e is $4000*e. The cost to Type II workers of getting education level e is $2000*e. Assuming the workers optimally choose e, characterize the values of e* that will lead to a separating equilibrium.

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Question: 1) Workers in one country are more productive than workers in another country because -they have ...

1) Workers in one country are more productive than workers in another country because

-they have more complementary factors to work with.

-they have fewer complementary factors to work with.

-they are better motivated and paid.

2) Conservative economists would like to help younger workers get work experience by

-setting up a government jobs program.

-raising the minimum wage rate.

-lowering the minimum wage rate.

-passing a law requiring employers to hire teenagers ahead of older workers who are equally qualified.

3) The Supreme Court's "rule of reason"

-has been applied since the time of the Civil War.

-has been applied since 1945.

-was applied from 1911 to 1945.

-has been applied since 1970.

4) Which is the smallest American labor union?

-United Auto Workers

-The International Brotherhood of Teamsters

-The National Education Association

-The Service Employees International Union

5) The Change to Win coalition recently mounted a national recruiting drive, primarily targeting _______.

-All of these jobs were targeted

-cashiers

-janitors

-dishwashers

6) The demand for labor is

-determined by the supply of labor.

-determined by the wage rate.

-its marginal revenue product schedule.

-higher at lower wage rates.

7) Economic rent is associated with

-low wages.

-agricultural workers.

-factory workers.

-high wages.

8) Which statement is true?

-The most important influence on a firm's demand for a factor of production is the demand for the final product.

-All of the statements are true.

-A firm will keep hiring more and more of a resource up to the point at which its MRP is equal to its price.

-If the MRP of the last worker hired is higher than the wage rate, the firm has hired too few workers.

9) Amelia Earhart's nominal wages rose from $40,000 to $50,000, while the CPI rose by 20%. Her real wages

-rose.

-fell.

-cannot be calculated with the available information.

-stayed the same.

10) Which of the following is NOT an example of a vertical merger?

-The merger of two computer companies

-The merger of an automobile company and a tire company

-The merger of a computer company and a microelectronics chip company

-The merger of a shoe producer and a leather producer

11) The demand for a resource rises as

-its productivity falls and prices of substitutable resources falls.

-its productivity rises and the prices of substitutable resources falls.

-its productivity rises and the relative prices of substitutable resources rises.

-its productivity falls and the relative prices of substitutable resources falls.

12) Interlocking directorates were expressly forbidden under the

-neither the Sherman Act nor the Clayton Act.

-both the Sherman and Clayton Acts.

-Clayton Act.

-Sherman Act.

13) A firm's demand for labor is

-its MRP schedule.

-determined by the going wage rate.

-shaped mainly by the supply of labor.

14) If unions are successful in negotiating a wage higher than the market equilibrium wage, and also guarantee employers that they can hire as many labor hours as they desire per week at the union wage,

-all workers who join the union will be guaranteed a job.

-the quantity of labor demanded will exceed the quantity supplied at the union wage.

-the quantity of labor demanded will equal the quantity supplied at the union wage.

-the quantity of labor demanded will fall short of the quantity supplied at the union wage.

15) Which of the following offers the best example of derived demand?

-An increase in the demand for cars causes an increase in the demand for gasoline.

-An increase in the demand for movie tickets causes an increase in the demand for popcorn.

-A decline in the demand for cars causes an increase in the demand for bus rides.

-An increase in demand for movie tickets causes an increase in the demand for movie theatre workers.

16) A "bill of rights" for union members and a provision of union election procedures were two of the main provisions of the _____ Act.

-Landrum-Griffin

-Sherman Antitrust

-National Labor Relations

-Taft-Hartley

17) The decision to bring suit in an antitrust case is usually made by

-the Supreme Court or a lower federal court.

-the injured party.

-the Department of Commerce.

-the Department of Justice.

18) At its peak labor union membership was about _____% of the labor force.

-35

-45

-15

-25

19) Combinations in restraint of trade are prohibited by

-the Sherman Act.

-the Federal Trade Commission Act.

-The Clayton Act.

20) Which statement is true?

-American manufacturing wages are the highest in the world.

-American manufacturing wage rates are the lowest of any industrial country.

-Our manufacturing wage rates are the second highest in the world.

-None of the statements are true. MICROECONOMIC

Consider a manufacturing firm in a labor market that is perfectly competitive. There are two kinds of workers: productive workers whose marginal revenue product is $48,000 per year, and lazy workers whose marginal revenue product is $40,000 per year. It is difficult for the firm to differentiate between productive and lazy workers.

A local college offers a new yearlong astronomy course. Although the cost of tuition is the same for both types of workers, the psychic cost of having to work hard and get a passing grade is lower for productive workers because they can learn more quickly than lazy workers. Therefore, the cost of taking the class (including the cost of tuition as well as the psychic cost) is $5,000 per year for a productive worker and $10,000 per year for a lazy worker. Because astronomy has little relevance to manufacturing, taking the class does not increase or decrease a worker's productivity.

The firm uses the class as a way to differentiate between productive and lazy workers. That is, the firm would like to use the class as a job market signal. Workers enrolled in the class that year (with a passing grade) will earn $48,000 and workers Not enrolled that year will earn $40,000.

A. For productive workers, the NET Benefit (increase in earning minus cost) of taking the class this year is (-$5,000, -$3,000, -$2,000, $2,000, $3,000, $6,000, $8,000). For lazy workers, the NET Benefit of taking the class this year is (-$10,000, -$6,000, -$3,000, -$2,000, $2,000, $3,000, $8,000).

B. Which is True? (No one will take the class, so it can't be used as a credible signal for the firm, Only productive workers will take the class, so it becomes a credible signal for the firm, Both productive and lazy workers will take the class, so it is not a credible signal for the firm, Only lazy workers will take the class, so the firm cannot use the class as a credible signal).

C. Suppose that the local college learns that workers taking the astronomy class earn $8,000 more each year. As a result, the college increases the tuition of the class by $4,000. This increases the cost of taking the class by $4,000 for all workers. Under these new conditions, the Net Benefit of taking the class is (-$9,000, -$5,000, -$4,000, -$1,000, $1,000, $3,000, $8,000) for productive workers, and (-$10,000, -$6,000, -$4,000, -$2,000, $1,000, $6,000, $8,000) for lazy workers.

D. After the tuition increase, which is true? (Both productive and lazy workers will take the class, so it is not a credible signal for the firm, Only productive workers will take the class, so it is a credible signal for the firm, No one will take the class, so it can't be used as a credible signal for the firm, Only lazy workers will take the class, so the firm cannot use the class as a credible signal).

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