-Consider the Spence Education Game depicted in Figure 16.3. In the figure, all payoffs are in thousands of dollars per month. Suppose that 70 percent of all workers are low- productivity (LP) workers and 30 percent are high-productivity (HP) workers. Using pre- employment testing, the firm decides to adopt a separating strategy by assuming that only high-productivity workers go to college and that workers who have only graduated high school are low-productivity types. What is the firm's conditional expected payoff from hiring a college graduate?
A) $5,000
B) $3,500
C) $2,810
D) $1,960
E) $1,560

Question

-Consider the Spence Education Game depicted in Figure 16.3. In the figure, all payoffs are in thousands of dollars per month. Suppose that 70 percent of all workers are low- productivity (LP) workers and 30 percent are high-productivity (HP) workers. Using pre- employment testing, the firm decides to adopt a separating strategy by assuming that only high-productivity workers go to college and that workers who have only graduated high school are low-productivity types. What is the firm's conditional expected payoff from hiring a college graduate?
A) $5,000 
B) $3,500 
C) $2,810 
D) $1,960 
E) $1,560

Quizplus · Accepted Answer

Since the firm adopts a separating strategy assuming only high-productivity workers go to college, it means they expect to pay a college graduate the high-productivity wage. According to the information provided, this would be $5,000 per month.

-Consider the Spence Education Game Depicted in Figure 16