The Value of a Worker's Marginal Product Is $50 Per

question 27

Multiple Choice

The value of a worker's marginal product is $50 per hour for high-ability workers and $15 per hour for low-ability workers.The preferences of high-ability workers correspond to the utility function U_H(E,W) = W - 4E,and the preferences of low-ability workers correspond to the utility function U_L(E,W) = W - 10E.By law,everyone is required to attend at least ten years of school.Three-fifths of the population has low ability,and two-fifths has high ability.What can be said about the educational attainment of each type of worker in a separating equilibrium?

• A) E_L = 10; 13.5 < E_H < 18.75
• B) E_L = 10; E_H = 16.125
• C) E_L = 10; E_H = 10
• D) E_L = 13.5; E_H < 18.75

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