Figure 21.2 shows the benefit functions for low-ability workers and high-ability workers (A and B),along with one indifference curve for each worker type (C and D).The employer cannot observe worker type directly but has created two positions,E and F,as a screening mechanism.Which of the following is true?
A) The employer will lose money on the low-ability workers hired but earn profit on the high-ability workers hired.
B) The employer will earn profit on all workers hired.
C) The employer will break even on all workers hired.
D) The employer will lose money on all workers hired.

Question

Figure 21.2 shows the benefit functions for low-ability workers and high-ability workers (A and B),along with one indifference curve for each worker type (C and D).The employer cannot observe worker type directly but has created two positions,E and F,as a screening mechanism.Which of the following is true? 
A) The employer will lose money on the low-ability workers hired but earn profit on the high-ability workers hired. 
B) The employer will earn profit on all workers hired. 
C) The employer will break even on all workers hired. 
D) The employer will lose money on all workers hired.

Quizplus · Accepted Answer

The Answer of Figure 21.2 shows the benefit functions for low-ability workers and high-ability workers (A and B),along with one indifference curve for each worker type (C and D).The employer cannot observe worker type directly but has created two positions,E and F,as a screening mechanism.Which of the following is true? 
A) The employer will lose money on the low-ability workers hired but earn profit on the high-ability workers hired. 
B) The employer will earn profit on all workers hired. 
C) The employer will break even on all workers hired. 
D) The employer will lose money on all workers hired.

Figure 212 Shows the Benefit Functions for Low-Ability Workers and High-Ability