Consider Spence's signalling model where there are two types {10, 20} and Pr( = 20) = 1/2. Workers can obtain one of three levels of education: e {e1, e2, e3}. Agents get utility u(w, e|) = w c(e, ), where wages must obey w [10, 20]. The cost if given by

c(e1, 10) = 0 c(e1, 20) = 0

c(e2, 10) = 7 c(e2, 20) = 4

c(e3, 10) = 14 c(e3, 20) = 8

(a) What are the separating equilibria in this model? [Your description of any equilibrium should include a supporting wage function].

(b) What are the pooling equilibria in this model? [Again, your description of any equilibrium should include a supporting wage function].