Reference no: EM13199441
Suppose that a firm is a monopolist in the labor market and can set any wage it wants to. There is a prospective candidate interviewing for a sales position. The candidate may be very motivated (M) or not so motivated (U). The firm has two possible slots for the candidate: one is demanding job D and the other is an easy job E. The firm prefers to have type M in job D type U in job E. In the best outside option, the candidate is paid $80,000 a year. The monetary value of disutility in the job D is $15,000 for type M and $30,000 for type U. There is no disutility in the easy job. Assume that the net value of a job to the candidate is the wage less the monetary disutility. Assume that it is also possible for the firm to tell the candidate which job to do.
a. Suppose the firm could find out the type of the candidate through interview, and could tell the candidate which job to do. What wage would the firm pay if the candidate was found to be U? What wage would the firm pay if the candidate was found to be M?
b. Next, suppose that the firm cannot find out the candidate type. What wage would the firm attach to each job?
c. How would your answer to (a) change if job D involves a disutility of $5000 for type M and a disutility of $10000 for type U?
d. How would your answer to (b) change if job D involves a disutility of $5000 for type M and a disutility of $10000 for type U?
e. Suppose again that job D involves no disutility for either type. But now suppose that the outside option of type M is $85000 while the outside option of type U is still $80000. How would your answer to (b) change?
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