A "Signal" Will Not Work to Sort Good from Bad

question 3

Multiple Choice

A "signal" will not work to sort good from bad workers if

• A) the signal is as costly to good workers as to bad workers.
• B) bad workers are more risk-averse than good workers.
• C) the signal is excessively expensive to bad workers.
• D) good workers are more productive than bad workers.

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Definitions:

Net Income

The net income a business earns following the deduction of all costs and taxes from its gross revenue.

Dividends

Profit payouts by a corporation to its shareholders, usually as a method of distributing earnings.

Initial Value Method

An accounting approach for investments where the investment is recorded at its original cost without subsequent adjustments for changes in market value.

Equity Method

A method of accounting for investments where the investor's share of the investee's profits or losses is recognized in the investor's income statement.