Enigma, Ohio, has two kinds of workers, klutzes whose labor is worth $1,000 a month and kandos whose labor is worth $2,500 a month.Enigma has exactly twice as many klutzes as kandos.Klutzes look just like kandos and are accomplished liars, so if you ask, they claim to be kandos.It is too expensive to monitor anybody's work.A professor who likes to talk offers to give free lectures on personal hygiene and macroeconomics.Klutzes and kandos find these lectures excruciatingly dull.An hour's lecture is as bad as losing $50 for a kando and as bad as losing $100 for a klutz.If all other firms pay wages equal to the productivity of an average citizen of Enigma, which of these strategies would be most profitable for a new firm?
A)Offer a wage of $2,000 per month and require its workers to listen to 6 hours of lectures per month.
B)Offer a wage of $2,000 per month and require its workers to listen to 4 hours of lectures per month.
C)Offer a wage of $1,750 per month and require its workers to listen to 6 hours of lectures per month.
D)Offer a wage of $1,660 per month and require its workers to attend 1 hour of lectures per month.
E)Offer a wage of $2,600 per month and require its workers to attend 8 hours of lectures per month.

Question

Quizplus · Accepted Answer

The strategy of offering a wage of $2,000 per month and requiring workers to listen to 6 hours of lectures per month is most profitable. This approach effectively screens out klutzes, as the cost of attending the lectures (6 hours * $100 = $600 for klutzes vs. 6 hours * $50 = $300 for kandos) combined with the wage offered makes the position unattractive to klutzes while still appealing to kandos. The net gain for kandos (worth $2,500 in productivity) would be $2,000 - $300 = $1,700, which is above the average productivity wage, while klutzes (worth $1,000 in productivity) would receive $2,000 - $600 = $1,400, below their productivity value, making the position unappealing to them.

Enigma, Ohio, Has Two Kinds of Workers, Klutzes Whose Labor