Suppose that there are exactly two types of workers in LA: A’s and B’s. A’s earn a firm $15 in revenue (in their lifetime) and B’s earn a firm $10 in revenue (in their lifetime). There are equal numbers of each type of worker in LA. Firms cannot distinguish between the two types of workers. Even after a firm has hired them, the firm won’t be able to monitor their work closely enough to determine which workers are of which type. Workers prefer a higher wage to a lower wage and workers supply their labor (to the highest possible wage they can get) as long as this wage is positive. A firm pays a worker a wage equal to the expected amount of revenue the worker earns for the firm (in his/her lifetime). Workers are risk neutral.

What is the wage (per lifetime) that a type A worker receives? What is the wage (per lifetime) that a type B worker receives?

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The expected amount of revenue that a type A worker earns for the ... View the full answer