1. When a potential employee's true ability cannot be observed, firms will try to use observable characteristics as signals for how well someone will perform in a job. If there are costs to investing in signals, and the costs vary by each person's true ability, what must be true for firms to offer only two possible wage contracts?

a. It must be prohibitively costly for low productivity types to obtains signals for a potential job type

b. The payoff for a high productivity type to pursue (costly) high productivity signals must be higher than what high types would receive for taking a low-wage position.

c. The observable characteristics firms use to distinguish types must clearly align with underlying, unobserved worker productivity

d. None of the above