Suppose job applicants are distributed uniformly from $5,000 to $75,000 in quality. Asymmetric information exists such that firms may only observe the distribution. If firms are willing to pay a wage premium of 50% more than the average quality, then the equilibrium wage in the labor market equals $15,000 $65,000 $10,000 None of the above.
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- Workers come in many different types, or productivities. The productivity of a worker is given by O where 0 is distributed uniformly on the interval 0 < 0 < 2. When a firm hires a worker with productivity 0, the firm can produce 0 units of output and earn pe in revenue, where p < 2. Each worker can choose to work for the company, or can seek employment elsewhere that gives the worker a wage 03. (a) If the firm pays a wage w, which types of workers want to work for the firm? (b) What is the average output of the workers hired by the firm and what is the average output of those who don't work for it? (c) If the firm is a monopsony purchaser of labour, what wage would it set to maximise its profits. What is the employment level? (d) If the firm is in a perfectly competitive industry what will the wage be? (e) An educational establishment opens up. It will test the workers for free and only workers with 0 2 1 pass the test. The company decides to offer a different wage to workers who pass…What provision of federal law makes employer-based health insurance even more attractive to most EMPLOYEES who receive it than just the value of the premium? O Insured employees can take a tax deduction for the entire amount paid to doctors for the employee's treatment even if much of the cost was paid by insurance. Employer-based health insurance offers much better coverage than other types of insurance Employer-based health insurance offers lower copays and deductibles than other types of insurance The value of health insurance paid by an employer is not taxable income for the employee1. | Consider Spence job market signaling model. A worker's type is 0 e{6, 9}, where the probability that 0 = 9 is equal 2 e (0, 1). The total number of workers equals N. The productivity of a worker in a job is . Each worker chooses a level of education e20.The cost of obtaining education level e is 3e/0. Reservation utility is 4 for every worker. All workers are price takers and the price of the final good produced is 1. Assume that firms are risk neutral and employment lasts for one year. Assume that there are two firms that compete by offering wages simultaneously and independently. (a) Find all separating equilibria and identify a Pareto superior separating equilibrium. Do not forget to specify the equilibrium wage scheme. (b) Calculate TS and find the value of society loss (DWL) for the best (Pareto superior) signaling equilibrium. (c) Find all values of 1 e (0, 1) under which prohibition of signaling results in a Pareto improvement in comparison with the best (Pareto superior)…
- Refer to the graph below. It shows 2 indifference curves: for person A and for person B. Which person, A or 4) B, is relatively more likely to take on the risk when the probability of injury at work is 70%? Explain why. Make sure to include the analysis of the difference in the shape of the 2 curves. Be as detailed as possible. Wage UA UB Probability of Injury Figure 1. Indifference Curves of Person A and Person BThere are 50 workers in the economy in which all workers must choose to work a safe or a risky job. When it comes to accepting a risky job, Worker 1’s reservation price is $5; worker 2’s reservation price is $6, worker 3's reservation wage is $7, and so on. Assume there are exactly 12 risky jobs. (a) What is the equilibrium wage differential between safe and risky jobs? Which workers will be employed at the risky firm? (b) Suppose now that an advertising campaign, paid for by the employers who offer risky jobs, stresses the excitement associated with “the thrill of injury,” and this campaign changes the attitudes of the work force toward being employed in a risky job. Worker 1 now has a reservation price of $1, worker 2’s reservation price is $2, and so on. There are still only 12 risky jobs. What is the new equilibrium wage differential? c) What is the maximum the firm should be willing to pay for its ad campaign?what does non-stationarity mean ?
- Q-3 Are the following statement true of false ? You need to provide an aurgument for and against it why it is so.2. Suppose, as in class, that the utility function of a worker is U (w, e) = Vw - e, where w is the wage and e € {0, .8} is the level of effort. Suppose the reservation utility is 1. Suppose the outcome is $10 or $0 and that the probability of the $10 outcome is .6 if the worker works hard and .2 if the worker chooses low effort. (a) If you could costlessly monitor the worker's effort, would you want the worker to work hard? What payments would you offer and for what effort?A gated community is considering hiring 24-hour security service to further protect the residents. Each security guard costs $100 per day. There are four residents of the community, with the total individual benefit for each resident shown below (total benefit, not marginal). Numbe r of Guards Betty Mark Geri Jon $40 $15 $30 $20 $80 $30 $60 $25 $130 $60 $90 $30 $180 $120 $120 $35 $230 $240 $150 $40 1 3 5 How many security guards will the community hire? 1. 4.
- Derive the utility function of a worker who is aiming to maximize his utility in the market for risky jobs. Explain and illustrate graphically how this worker will be making his choice among different alternatives of risk/wage combinations.Consider Figure 9.1. Assume SFK and Timken merge to become the MVD Company with new cost reductions, indicated by MC1=AC1, which result from changes in work by MVD Company employees that lead to higher worker productivity. Compare to the original competitive equilibrium, the effect of MVD Company's formation on welfare now isA.) a gain of $5.50B.) a gain of $2.50C.) a loss of $5.50D.) no change .1) Consider observable effort. Assume that if the Agent does not accept the wage the Principal offers his outside option gives him a net utility of v =2. The probability of high profit under e=1 is %, the probability of high profit under low effort is 1/4. Calculate the minimum wage that the agent will accept to work and supply the asked effort when the Principal asks him to supply e=0, and e=1. Let us call these wages wo and wi. Now, assume that instead of offering him a flat wage, the Principal is offering the agent a wage schedule (, w) where the agent receives when the (gross) profit is High and w when the (gross) profit is low. Calculate all the lowest cost wage schedules the agent will accept to supply e=1, and e=D0. Does the principal's expected net profit change when he pays the minimum cost wage schedule instead of the flat wage minimum cost wage? Explain the intuition for your answer.