Exam 13: The Hiring Process

Suppose a competitive labor market is populated by equal numbers of high-ability (H)and low-ability (L)workers.Each-high ability worker produces output valued at $100 and each low-ability worker produces output valued at $20.In terms of time for their effort,it costs $50 for high-ability students to acquire a college degree while it costs low-ability students $85 to acquire a college degree.Firms will offer workers with college degrees ______ and workers without college degrees ______.

Assume that there are two types of workers: safe and risky.At the beginning of the first period a firm must decide to hire a safe or risky worker.Safe workers have constant ability worth $200 per period.There is a 50 percent chance a risky worker will have ability worth $300 per period and a 50 percent chance a risky worker will have ability worth $100 per period.Safe workers can be hired for a per-period wage of $190 and risky workers can be hired for a per-period wage of $210.What are the firm's profits if it hires a safe worker?

Which of the following is an example of symmetric information in which both workers and firms are uninformed about workers' true abilities?