The Value of a Worker's Marginal Product Is $40 Per

question 63

Multiple Choice

The value of a worker's marginal product is $40 per hour for high-ability workers and $5 per hour for low-ability workers.The preferences of high-ability workers correspond to the utility function U_H(E,W) = W - 5E,and the preferences of low-ability workers correspond to the utility function U_L(E,W) = W - 8E.By law,everyone is required to attend at least ten years of school.Three-fourths of the population has low ability,and one-fourth has high ability.What can be said about the educational attainment of each type of worker in a separating equilibrium?

• A) E_L = 10; 10 < E_H < 14.375
• B) E_L = 10; E_H < 17
• C) E_L = 10; E_H > 14.375
• D) E_L = 10; 14.375 < E_H < 17

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