1. The asymmetry in the labor market is that _______ know more than _______ about a worker€™s _______.
2. Arrows up or down: In a labor market with asymmetric information, a firm will hire only low-productivity workers if the firm€™s _______ is less than the _______ of high-productivity workers.
3. In a labor market with asymmetric information, an increase in the wage _______ (increases/ decreases) the average productivity of the workforce if the wage rises above the _______ of high productivity workers.
4. Paying efficiency wages increases the average productivity of firm€™s workers by discouraging _______ and reducing worker _______.
5. Law firms pay more than hotels for janitors because managers in the law firm have a higher _______.
6. Higher Wages for Landscaping Workers. Suppose that half of landscaping workers have a marginal revenue product of $40 and an opportunity cost of $30 and the other half have a marginal-revenue product of $60 and an opportunity cost of $45. A landscaping firm cannot distinguish between the two types of workers.
a. Suppose a landscaping firm offers a wage equal to $41. What is the average productivity of its workforce? On average, what is the firms profit per worker?
b. Suppose the firm increases its wage to $47. What is the average productivity of its workforce? On average, what is the firms profit per worker?
c. What are the equilibrium wages?
7. Equilibrium with Efficiency Wages. Consider a labor market with asymmetric information: Each worker knows his or her marginal-revenue product, but firms cannot distinguish between low-skill and high-skill workers. Each low-skill worker has an opportunity cost of $80 and a marginal revenue product of $100, and each high-skill worker has an opportunity cost of $130 and a marginal revenue product of $200. The workforce is divided equally between the two types of workers. Fill in the blanks in the followingtable.

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$100 $120 $140 $150 Wage Average profit per worker