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Question: There are two types of workers, H (high skilled) types and (low skilled) L types. Workers' utilit...

Show transcribed image text There are two types of workers, H (high skilled) types and (low skilled) L types. Workers' utility function is u_L = w(e) – c_L (e) for L types u_H = w(e) – c_H(e) for H types Where w(e) is the compensation schedule posted by firms, c_H(e) is the cost of acquiring an education of e years for an H type, c_L(e) is the cost of acquiring an education of e years for an L type. Suppose that c_H(e) = 3/5 e and c_L(e) = 4/5 e^2. Suppose that the value of the marginal product of an H type is 25e and the value of the marginal product of an L type is 10e. Suppose that half of the workers are H types, but an employer cannot directly distinguish an H type from an L type. In a separating equilibrium, the H types get more education than the L types, and the firms pay more to the workers with the higher level of education. Find the levels of education e_H and e_L supporting a separating equilibrium and characterise the equilibrium compensation schedule posted by firms at the equilibrium.

There are two types of workers, H (high skilled) types and (low skilled) L types. Workers' utility function is u_L = w(e) – c_L (e) for L types u_H = w(e) – c_H(e) for H types Where w(e) is the compensation schedule posted by firms, c_H(e) is the cost of acquiring an education of e years for an H type, c_L(e) is the cost of acquiring an education of e years for an L type. Suppose that c_H(e) = 3/5 e and c_L(e) = 4/5 e^2. Suppose that the value of the marginal product of an H type is 25e and the value of the marginal product of an L type is 10e. Suppose that half of the workers are H types, but an employer cannot directly distinguish an H type from an L type. In a separating equilibrium, the H types get more education than the L types, and the firms pay more to the workers with the higher level of education. Find the levels of education e_H and e_L supporting a separating equilibrium and characterise the equilibrium compensation schedule posted by firms at the equilibrium.