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 $250 for a klutz and $100 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 16

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 $250 for a klutz and $100 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 16 < H < 80.
B)if 16 < H < 40.
C)only in the limit as H approaches infinity.
D)for all positive values of H.
E)if 14 < H < 35.

Quizplus · Accepted Answer

To create a separating equilibrium, attending the course must be a better option for kandos than not attending, and not attending must be a better option for klutzes than attending. Given the costs of attending the course ($250 for klutzes and $100 for kandos per hour), and the difference in productivity ($4,000), we can calculate the number of hours (H) that makes attending and not attending the optimal strategies for kandos and klutzes, respectively. The correct choice ensures that the cost of attending the course for klutzes exceeds the wage difference, while for kandos, the cost of attending is less than the wage difference, making it worthwhile for them to attend. This creates a separating equilibrium where only kandos choose to attend the course to earn the higher wage.

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