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

Question

Quizplus · Accepted Answer

In the two-sided search model, firms consider both the cost of posting a vacancy and the profits from a match with a worker. They will continue posting vacancies until the ratio of the cost of posting a vacancy to the profits from a match is minimized, which is when the probability of matching with a worker is equal to this ratio. Therefore, choice C is the best answer.

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