Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $4,000 per month.You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity.Kandos, however, have more patience than klutzes.Listening to an hour of dull lectures is as bad as losing $150 for a klutz and $50 for a kando.There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $4,000 per month and anybody who does not is paid $1,000 per month
A)if 20

Question

Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $4,000 per month.You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity.Kandos, however, have more patience than klutzes.Listening to an hour of dull lectures is as bad as losing $150 for a klutz and $50 for a kando.There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $4,000 per month and anybody who does not is paid $1,000 per month
A)if 20 < H < 60.
B)if 20 < H < 120.
C)only in the limit as H approaches infinity.
D)for all positive values of H.
E)if 16.67 < H < 50.

Quizplus · Accepted Answer

To ensure that only kandos attend the lectures, the payment for attending the course needs to be higher than the productivity gain of a klutz attending the course. 
For a klutz, attending an hour of lecture is as bad as losing $150, so the productivity gain for H hours of lecture is $1000-$150H.
For a kando, attending an hour of lecture is as bad as losing $50, so the productivity gain for H hours of lecture is $4000-$50H.
To find the separating equilibrium, we need to solve for the value of H such that the productivity gain for attending the course is equal to the productivity gain for not attending the course.

$1000 - $150H = $4000 - $50H

Simplifying, we get:

$1000 = $1450H

H = 20/29

Therefore, anyone who attends H=20/29 hours of lecture will be paid $4000 per month, and anyone who does not attend will be paid $1000 per month. 
This is possible only for choice A.

Suppose That in Enigma, Ohio, Klutzes Have a Productivity of $1,000