Question: Suppose that a worker's cost of going to school is e(x, 0), where x is the amount of school and 0 is the worker's

Suppose that a worker's cost of going to school is e(x, 0),

Suppose that a worker's cost of going to school is e(x, 0), where x is the amount of school and 0 is the worker's ability / productivity. a) suppose that c is differentiable and < 0. Interpret this condition in words in the context of the model. b) Now suppose that firms can observe education but not ability, and thus offer wages w(x) which depend only on education. The workers utility is given by w(x)-c(x,e). Is there any wage function which will induce higher ability workers to choose lower levels of education?

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ANS a 2 cx 0 given 2 cx cx c is the change of cost of education per unit change in ability So c is t... View full answer

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