Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $5,000 per month.You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity.Kandos, however, have more patience than klutzes.Listening to an hour of dull lectures is as bad as losing $250 for a klutz and $150 for a kando.There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $5,000 per month and anybody who does not is paid $1,000 per month
A)only in the limit as H approaches infinity.
B)if 16

Question

Suppose that in Enigma, Ohio, klutzes have a productivity of $1,000 and kandos have a productivity of $5,000 per month.You can't tell klutzes from kandos by looking at them or asking them, and it is too expensive to monitor individual productivity.Kandos, however, have more patience than klutzes.Listening to an hour of dull lectures is as bad as losing $250 for a klutz and $150 for a kando.There will be a separating equilibrium in which anybody who attends a course of H hours of lectures is paid $5,000 per month and anybody who does not is paid $1,000 per month
A)only in the limit as H approaches infinity.
B)if 16 < H < 53.33.
C)for all positive values of H.
D)if 16 < H < 26.67.
E)if 14 < H < 23.33.

Quizplus · Accepted Answer

To have a separating equilibrium, we need to find the minimum value of H such that kandos attend the lecture and klutzes do not. 
Let's assume that attending the lecture is only profitable for kandos if they are paid at least as much as their productivity minus the cost of attending the lecture. Therefore, attending the lecture is profitable for kandos if $5,000 - $150H ≥ $1,000  which simplifies to H ≥ 26.67. 
On the other hand, attending the lecture is not profitable for klutzes if they lose more than their productivity by attending the lecture. Therefore, attending the lecture is not profitable for klutzes if $1,000 - $250H < $1,000, which simplifies to H > 4. 
Therefore, the separating equilibrium exists if and only if 4 < H < 26.67, which is satisfied by choice D.

Suppose That in Enigma, Ohio, Klutzes Have a Productivity of $1,000