Suppose that low-productivity workers all have marginal products of 10 and high-productivity workers have marginal products of 16.The community has equal numbers of each type of worker.The local community college offers a course in microeconomics.High-productivity workers think taking this course is as bad as a cut in wages of $5 and low-productivity workers think it is as bad as a wage cut of $9.
A)There is no separating equilibrium and no pooling equilibrium.
B)There is no separating equilibrium, but there is a pooling equilibrium in which everybody is paid $13.
C)There is a separating equilibrium in which high- productivity workers take the course and are paid $21 and low-productivity workers do not take the course and are paid $10.
D)There is a separating equilibrium in which high- productivity workers take the course and are paid $16 and low-productivity workers do not take the course and are paid $10.
E)There is a separating equilibrium in which high- productivity workers take the course and are paid $16 and low-productivity workers are paid $13.

Question

Quizplus · Accepted Answer

A separating equilibrium exists when high-productivity workers take the course and are paid their marginal product of 16, while low-productivity workers do not take the course and are paid their marginal product of 10. This equilibrium is sustainable because neither type of worker has an incentive to deviate. If a low-productivity worker were to take the course, they would have to take a wage cut of $9, which is worse than their current wage of $10. If a high-productivity worker were to not take the course, they would face a wage cut of $5, which is worse than their current wage of $16. Therefore, D is the correct choice.

Suppose That Low-Productivity Workers All Have Marginal Products of 10