Consider a manufacturing firm in a labor market that isperfectly competitive. There are two kinds of workers: productiveworkers whose marginal revenue product is $48,000 per year, andlazy workers whose marginal revenue product is $40,000 per year. Itis difficult for the firm to differentiate between productive andlazy workers. A local college offers a new yearlong astronomy course. Althoughthe cost of tuition is the same for both types of workers, thepsychic cost of having to work hard and get a passing grade islower for productive workers because they are able to learn morequickly than lazy workers. Therefore, the cost of taking the class(including the cost of tuition as well as the psychic cost) is$5,000 per year for a productive worker and $10,000 per year for alazy worker. Because astronomy has little relevance tomanufacturing, taking the class does not increase or decrease aworker's productivity. The firm uses the class as a way to differentiate betweenproductive and lazy workers. That is, the firm would like to usethe class as a job market signal. Workers enrolled in the classthat year (with a passing grade) will earn $48,000 and workers Notenrolled that year will earn $40,000. A. For productive workers, the NET Benefit (increase in earningminus cost) of taking the class this year is (-$5,000,-$3,000, -$2,000, $2,000, $3,000, $6,000, $8,000). Forlazy workers, the NET Benefit of taking the class this year is(-$10,000, -$6,000, -$3,000, -$2,000, $2,000, $3,000,$8,000). B. Which is True? (No one will take the class, so itcan't be used a credible signal for the firm, Only productiveworkers will take the class, so it becomes a credible signal forthe firm, Both productive and lazy workers will take the class, soit is not a credible signal for the firm, Only lazy workers willtake the class, so the firm cannot use the class as a crediblesignal). C. Suppose that the local college learns that workers taking theastronomy class earn $8,000 more each year. As a result, thecollege increases the tuition of the class by $4,000. Thisincreases the cost of taking the class by $4,000 for all workers.Under these new conditions, the Net Benefit of taking the class is(-$9,000, -$5,000, -$4,000, -$1,000, $1,000, $3,000,$8,000) for productive workers, and (-$10,000,-$6,000, -$4,000, -$2,000, $1,000, $6,000, $8,000) forlazy workers.
Consider a manufacturing firm in a labor market that isperfectly competitive. There are two kinds of workers: productiveworkers whose marginal revenue product is $48,000 per year, andlazy workers whose marginal revenue product is $40,000 per year. Itis difficult for the firm to differentiate between productive andlazy workers.
A local college offers a new yearlong astronomy course. Althoughthe cost of tuition is the same for both types of workers, thepsychic cost of having to work hard and get a passing grade islower for productive workers because they are able to learn morequickly than lazy workers. Therefore, the cost of taking the class(including the cost of tuition as well as the psychic cost) is$5,000 per year for a productive worker and $10,000 per year for alazy worker. Because astronomy has little relevance tomanufacturing, taking the class does not increase or decrease aworker's productivity.
The firm uses the class as a way to differentiate betweenproductive and lazy workers. That is, the firm would like to usethe class as a job market signal. Workers enrolled in the classthat year (with a passing grade) will earn $48,000 and workers Notenrolled that year will earn $40,000.
A. For productive workers, the NET Benefit (increase in earningminus cost) of taking the class this year is (-$5,000,-$3,000, -$2,000, $2,000, $3,000, $6,000, $8,000). Forlazy workers, the NET Benefit of taking the class this year is(-$10,000, -$6,000, -$3,000, -$2,000, $2,000, $3,000,$8,000).
B. Which is True? (No one will take the class, so itcan't be used a credible signal for the firm, Only productiveworkers will take the class, so it becomes a credible signal forthe firm, Both productive and lazy workers will take the class, soit is not a credible signal for the firm, Only lazy workers willtake the class, so the firm cannot use the class as a crediblesignal).
C. Suppose that the local college learns that workers taking theastronomy class earn $8,000 more each year. As a result, thecollege increases the tuition of the class by $4,000. Thisincreases the cost of taking the class by $4,000 for all workers.Under these new conditions, the Net Benefit of taking the class is(-$9,000, -$5,000, -$4,000, -$1,000, $1,000, $3,000,$8,000) for productive workers, and (-$10,000,-$6,000, -$4,000, -$2,000, $1,000, $6,000, $8,000) forlazy workers.
D. After the tuition increase, which is true? (Bothproductive and lazy workers will take the class, so it is not acredible signal for the firm, Only productive workers will take theclass, so it is a credible signal for the firm, No one will takethe class, so it can't be used as a credible signal for the firm,Only lazy workers will take the class, so the firm cannot use theclass as a credible signal).
Step by step
Solved in 5 steps with 6 images
