There are two types of worker,high ability and low ability. High-ability workers generate gross profit of A on the job and low-ability generate nothing. Education does not make workers more productive,but is costly to obtain (cH for high ability workers and cL for low ability ones). Let w be the wage that all firms in the economy pay by regulatory mandate. Suppose the worker obtains utility given by the wage (if the worker is employed,0 if not)minus the cost of education (if any). There is no disutility from work. Which condition is required if only the high-ability type is to obtain an education in equilibrium?
A)cH

Question

There are two types of worker,high ability and low ability. High-ability workers generate gross profit of A on the job and low-ability generate nothing. Education does not make workers more productive,but is costly to obtain (cH for high ability workers and cL for low ability ones). Let w be the wage that all firms in the economy pay by regulatory mandate. Suppose the worker obtains utility given by the wage (if the worker is employed,0 if not)minus the cost of education (if any). There is no disutility from work. Which condition is required if only the high-ability type is to obtain an education in equilibrium?
A)cH < w < cL.
B)cL < w < cH.
C)cH < cL < w.
D)cL < cH < w.

Quizplus · Accepted Answer

For only high-ability workers to obtain an education in equilibrium, it must be that the cost of education for high-ability workers (cH) is less than the wage (w), making it worthwhile for them to get educated and employed. However, the cost of education for low-ability workers (cL) must be higher than the wage, deterring them from pursuing education since they would not recoup their costs. This ensures that only high-ability workers find it beneficial to get educated, aligning with option A: cH < w < cL.

There Are Two Types of Worker,high Ability and Low Ability