The value of a worker's marginal product is $50 per hour for high-ability workers and $15 per hour for low-ability workers.The preferences of high-ability workers correspond to the utility function U_H(E,W)= W - 4E,and the preferences of low-ability workers correspond to the utility function U_L(E,W)= W - 10E.By law,everyone is required to attend at least ten years of school.Three-fifths of the population has low ability,and two-fifths has high ability.Would it be Pareto efficient for the government to ban schooling beyond 10 years rather than allow a separating equilibrium? A) Yes, because both U_L and U_H would rise. B) Yes, because although U_H would fall, U_L would rise. C) No, because although U_L would rise, U_H would fall. D) No, because both U_L and U_H would fall.

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Quizplus · Accepted Answer

No, because although U_L would rise, U_H would fall.Banning schooling beyond 10 years would likely increase the utility of low-ability workers (U_L) because they would not have to incur the cost of additional schooling to signal their ability, which is not as high as that of high-ability workers. However, this ban would decrease the utility of high-ability workers (U_H) because they would lose the opportunity to signal their higher ability through additional education, which could lead to higher wages. Therefore, while the utility for one group might rise, the utility for the other group would fall, making it not Pareto efficient.

The Value of a Worker's Marginal Product Is $50 Per