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Please help me out with these Microeconomic questions!!! Thank you so much! I really appreciate that. 4. There exists high-ability and low-ability workers. Firms are willing to pay up to $80,000 for a high-ability worker and $20,000 for a low-ability worker. Going to college provides a signal that one is a high-ability worker at a cost of $10,000. (a) is a separating equilibrium where high-ability workers go to college and low-ability workers do not possible? That is, do high-ability workers have an incentive to go to college? (b) Suppose there are an equal number of high-ability and low-ability workers. What is the average willingness to pay for a random worker for a firm? Do high-ability workers go to college? (c) Do high-ability workers prefer the pooling or the separating equilibrium? What about low-ability workers? (d) Does increasing the difference between the firm's value of the two workers make it more likely a pooling or a separating equilibrium exists? (e) Does increasing the cost of college make it more likely a pooling or a separating equilibrium exists? (1) Does increasing the number of high-ability workers make it more likely a pooling or a separating equilibrium exists? (g) Using this framework, explain how increased income inequality increased differences between the wages of high and low income workers) can lead to a higher willingness to pay for college and thus might be a driver of tuition increases.

Answer 1

Answer Swer High Skilled worker - $80,000 low skilled writer = $20,000 college cost = $40,000 ca) In a Separting equilibrium, Payoff for high skilled = 80,000-H0,000 5+40,000 Payott for low skilled : 20,000 The fore, high scülked labouns have incentive to go to college 2.0 1b) Average willingness to = *80.000 pay for random worker + 4 X 20,000 = 60,000 Since 60,000>40,000 Chigh skilled going college) high skilled worker has no incentive to go to college. C, since high skilled writers are getting higher pay off in pooling equilibrium compored to seporting equilibrium . thorfole high Skilled tabat porter pooling equilibrium. 1. Low skilled labours will also preter pooling equilibrium as they are getting highest payoff

of two wo Increasing the difference of the firm's value two writers will make it more likey to sepoorting equilibrium. It can be shown from following en High sicilled Cabour value increases from $80,000 to $1,80,000 Low Skilled labour value remains $ 20,000 In pooling equilibrium Hverage willing to pay = {x1,80,000 + 1*20,000 #+1,00,000 payoff for high skilled = 1,00,000 In Separting equilibrium, Payoff for high. Skilled = 1,80,000 -40,000 =1,40,000 Since payoff from Separting equilibrium is higher, it is perfered. ę, pooling equilibrium will be preferred because in case of separting equilibrium, the higher wage will be offset by higher colleges fees resulting in decrease in payoff.

will make pooling cau in this case high slett Increasing the number of high skilled labours male pooling cquilibrium preferable because Case high skilled labours will dominate the market and the average willingness to Pay will come near to the wage the deserve. g. If there is higher incone difference, then there will be more demand for college . because now the high-skilled labours need to show their worth by going to college and receive a wage which is close to what they deserve. However the higher tution fees will further deter them from going to . college. With both the dynamics in the market ultimately an equilibrium will be reached.