Lets assume our community has both high productivity workers (where their marginal product of labor, MP_L is 45) and low productivity workers (where their marginal product of labor, MP_L is 25).

(a) What would be the wage if we had perfect information?

(b) Now, lets assume there is asymmetric information. If we know that our community is madeup of 40% of high productivity workers, what is the competitive wage?

(c) Lets assume weve decided to offer a wage of $45 if a worker has at least 4 years of college. Ifthey do not have at least 4 years, we will offer a wage of $25. If each year of college costs $6,what will each type do?

(d) Lets now assume the firm will offer the wage of $45 for any worker that obtains someelevel of education. Further assume that the cost of education is now $2 per year for the high-productivity worker and $4 per year for the low-productivity worker. For what levels ofewilleach type go to college? What is the separating equilibrium?

(e) It turns out the firm was wrong about the labor supply composition. In reality, the laborsupply consists of 10% high-productivity workers and 90% low-productivity workers. What isthe competitive wage is this case? How does it differ? Explain.