Question: Entry-level computer engineers in Seattle can be either high or low ability. Demand for engineers is perfectly competitive. Employers cannot distinguish the ability of

Entry-level computer engineers in Seattle can be either high or low ability.

Entry-level computer engineers in Seattle can be either high or low ability. Demand for engineers is perfectly competitive. Employers cannot distinguish the ability of any single engineer from another. An employer's total profit increase by 12 (thousand dollars) when a high-ability engineer completes a task, and by 5 (thousand dollars) when a low-ability one completes a task. High-ability engineers have utility function UH = W - 0.572, where W is wage (in thousand dollars) and T is number of tasks performed. Meanwhile, low-ability engineers have utility function U = W T. (a) (10 points) Suppose the employers design the following contract: "if you perform 5 tasks, you will be paid 5 (thousand dollars) per task; if you perform X number of tasks (X > 5), you will be paid 12 (thousand dollars) per task". Find Xmin, the minimal number of task X such that this contract achieves a separating equilibrium? (Leave your answer as it is. No rounding of Xmin required)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

To find the minimal number of tasks Xmin that achieves a separating equilibrium we need to dete... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!