Question

Suppose there are two types of employees: Type-A and Type-B. Employers cannot distinguish between the two but know that Type-A employees are more productive. Specifically, the value of a Type-A employee to the firm is $20 and the value of a Type-B employee is $10. The cost of education for Type-A employees is 2e, where e is a year of education; the cost for Type-B employees is 4e. If Type-A employees make up 25 percent of the population, what is the pooling equilibrium?

Answer 1

The pooling equilibrium 12.5.

Step-by-step explanation:

if type-A employees make up 25% of the population, then the type-B employees make up 75% of that population.

pooling equilibrium = 25%*20 + 75%*10

= 5 + 7.5

= 12.5

Therefore, The pooling equilibrium 12.5.