Question

There are two kinds of workers. One kind has a constant marginal product worth $10 and the other kind has a constant marginal product worth $15. There are equal numbers of each kind of worker. A firm cannot tell the difference between the two kinds of workers.  

1. Suppose that the high productivity workers all choose to take the microeconomics course and the low productivity workers all choose not to. In this equilibrium, what is the competitive wage for people who take the microeconomics course? What is the wage for those who don’t take the microeconomics course?

2. If there is a separating equilibrium, with high productivity workers taking the course, and low productivity workers not taking it, then what is the net benefit of taking the microeconomics course for the high productivity workers? What is the net benefit for taking the course for low productivity workers (if they take it)? Hence can separation occur in equilibrium? The microeconomics course is replaced by a course in sociology. High productivity workers think that the course is as bad as $1 wage cut. Low productivity workers think it is as bad as a $4 wage cut.

3. Suppose all the high productivity workers choose to take the sociology class and the low productivity workers choose not to. What is the competitive wage for those who take the course and for those who do not?  

4. What are the net benefits for high ability workers from taking the sociology class? What are the net benefits for low productivity workers from taking the class? Hence will be there be a separating equilibrium?

Answer 1

* In this condition first off all the course chosen by high productivity workers i.e. Microeconomics. The competative wave for these type of workers is $15. becaus it shows the high marginal product. and as who dont take this course which are low productivitu workers are getting eage of $10. So, we can conclude that the workers who are opting for microeconomic course will be getting more wage.

* In the second condition of separating equillibrium. we can see that when the high productivity workers find suotable wages and they will get the maximum net benefit of choosing the course. and if the low productivity workers also choose to select this course then they will find more benefit as compared when they are not taking that course. Separating equillibrium does play the role. On the equillibrium the share of high productivity workers are more as compared to the lower one, but both are them them choose this course then the equillibrium point will shift upward or right.

* When the sociology course arrived then there is possibility of choosing this course by high productivity workers because the wage cut is very less as compared to the lower one. Low prodictivity workers are not totally ready to accept this course because they faces more wage cut. i.e $4. This will leads to the separating equillibrium.because when we see that the share of the low production workers is less. They feels to loose more income as compared to high productivity workers.