In West Bend, Indiana, there are exactly 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 workers of each kind. A firm cannot directly tell the difference between the two kinds of workers. Even after it has hired them, it won’t be able to monitor their work closely enough to determine which workers are of which type.
(a) If the labor market is competitive, workers will be paid the average value of their marginal product. This amount is ___________
(b) Suppose that the local community college offers a microeconomics course in night school, taught by Professor M. De Sade. The high productivity workers think that taking this course is just as bad as a $3 wage cut, and the low-productivity workers think it is just as bad as a $6 wage cut. The firm can observe whether or not an individual takes the microeconomics course. Suppose that the high-productivity workers all choose to take the microeconomics course and the low-productivity workers all choose not to. The competitive wage for people who take the microeconomics course will be _________ and the wage for people who don’t take the microeconomics course will be _________.
(c) If there is a separating equilibrium, with high-productivity workers taking the course and low-productivity workers not taking it, then the net benefits from taking the microeconomics course will be ________ for the high-productivity workers and ________ for the low-productivity workers. Therefore there (will be, won’t be) __________ a separating equilibrium of this type.
(d) Suppose that Professor De Sade is called off to Washington, to lecture wayward representatives on the economics of family values. His replacement is Professor Morton Kremepuff. Kremepuff prides himself on his ability to make economics “as easy as political science and as fun as the soaps on TV.” Professor Kremepuff’s claims are exaggerated, but at least students like him better than De Sade. High-productivity workers think that taking Kremepuff’s course is as bad as a $1 wage cut, and low-productivity workers think that taking Kremepuff’s course is as bad as a $4 wage cut. If the high-productivity workers all choose to take the microeconomics course and the low-productivity workers all choose not to, the competitive wage for people who take the microeconomics course will be _________ and the wage for people who don’t take the microeconomics course will be _________.
(e) If there is a separating equilibrium with high-productivity workers taking the course and low-productivity workers not taking it, then the net benefits from taking Kremepuff’s microeconomics course will be _________ for the high-productivity workers and _______ for the low-productivity workers. Therefore there (will be, won’t be) ____________ a separating equilibrium of this type.