Asked by Patrick Olano on May 19, 2024
Verified
Enigma, Ohio, has two kinds of workers, klutzes whose labor is worth $1,000 a month and kandos whose labor is worth $2,500 a month.Enigma has exactly twice as many klutzes as kandos.Klutzes look just like kandos and are accomplished liars, so if you ask, they claim to be kandos.It is too expensive to monitor anybody's work.A professor who likes to talk offers to give free lectures on personal hygiene and macroeconomics.Klutzes and kandos find these lectures excruciatingly dull.An hour's lecture is as bad as losing $50 for a kando and as bad as losing $100 for a klutz.If all other firms pay wages equal to the productivity of an average citizen of Enigma, which of these strategies would be most profitable for a new firm?
A) Offer a wage of $2,000 per month and require its workers to listen to 6 hours of lectures per month.
B) Offer a wage of $2,000 per month and require its workers to listen to 4 hours of lectures per month.
C) Offer a wage of $1,750 per month and require its workers to listen to 6 hours of lectures per month.
D) Offer a wage of $1,660 per month and require its workers to attend 1 hour of lectures per month.
E) Offer a wage of $2,600 per month and require its workers to attend 8 hours of lectures per month.
Klutzes
Describes persons who are clumsy, often making mistakes or causing accidents in a somewhat comical or endearing way.
Personal Hygiene
Practices and habits that are intended to care for one's bodily health and well-being, through cleanliness.
Macroeconomics
A branch of economics dealing with the structure, performance, behavior, and decision-making of an economy as a whole, rather than individual markets.
- Absorb the idea of dispersing and gathering equilibria in the spheres of labor and insurance industries.
- Explore how personal likes and productive effectiveness determine the choices of employees and their pay rates.
- Gain insight into how the deployment of mechanisms like signaling and screening can tackle the predicaments brought about by adverse selection.
Verified Answer
Learning Objectives
- Absorb the idea of dispersing and gathering equilibria in the spheres of labor and insurance industries.
- Explore how personal likes and productive effectiveness determine the choices of employees and their pay rates.
- Gain insight into how the deployment of mechanisms like signaling and screening can tackle the predicaments brought about by adverse selection.
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