In the two-sided search model, firms continue posting vacancies until the probability of matching with a worker is equal to
A) the ratio of the cost of posting a vacancy to the profits from a match.
B) the marginal product of labour.
C) the real wage rate.
D) the ratio of the profits from a match to the number of matches.
E) the unemployment rate.

Question

Quizplus · Accepted Answer

The firms in the two-sided search model continue posting vacancies until the marginal cost of posting a vacancy is equal to the marginal benefit from filling the vacancy. The marginal benefit is the profits from a match, which can be written as the product of the probability of matching with a worker and the surplus generated by the match. Therefore, the firms continue posting vacancies until the probability of matching with a worker is equal to the ratio of the cost of posting a vacancy to the profits from a match.

In the Two-Sided Search Model, Firms Continue Posting Vacancies Until