Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $5,000 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 $5,000 per month and anybody who does not is paid $1,000 per month
A)if 26.67

Question

Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $5,000 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 $5,000 per month and anybody who does not is paid $1,000 per month
A)if 26.67 < H < 80.
B)if 26.67 < H < 160.
C)only in the limit as H approaches infinity.
D)for all positive values of H.
E)if 23.33 < H < 70.

Quizplus · Accepted Answer

If the number of lecture hours is between 26.67 and 80, only kandos will attend the lectures, and they will be paid $5,000 per month. Klutzes will not attend the lectures, and they will be paid $1,000 per month. This is a separating equilibrium because kandos and klutzes will self-select into the appropriate wage group based on their preferences for leisure.

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