Q1. Consider the signalling model of educational choice. Assume that alow ability majority...

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Q1. Consider the signalling model of educational choice. Assume that alow ability majority individual has the same productivity as a low ability minority (both have marginal productivity of 5) and ahighability majority individual has the same productivity as a high ability minority (both have marginal productivity of 10). Half of all majority workers and half of all minority workers are high ability. The firms do not observe workers’ ability levels.
Firms assume that majority individuals with bachelor’s degree must be high ability workers. However, because minority households have less wealth on average than majority households, firmsdo not assumethat minority workers with less than bachelor’s degree are low ability (as it may instead simply reflect the greater cost of education for those from families with fewer resources). As a result, firms paydifferentwages to majorityworkersbased on their education, but treatall minorities the sameregardless of their education.
Assume that the cost of getting bachelor’s degree is 3 for high ability worker and 6 for low ability workers.
Assume that the firms pay workers their marginal product when worker’s ability is reliably revealed by their educational choices.If the ability is not known, the worker is paid herexpectedmarginal product.
What wages will firms pay to majority workerswitha bachelor’s degree? Submit the answer rounded to the nearest integer.
Q2. Use exactly the same scenarioas for Q1.
What wages will firms pay to majority workerswithouta bachelor’s degree?Submit the answer rounded to the nearest integer.
Q3. Based on youranswers toQ1 and Q2, in the table below fill out thenetbenefit of each educational choice for majorityworkers, and thenpredict the education attainment of the majority workers.
Q4. Use exactly the same scenario as for Q1.What wages will firms pay to minority workerswitha bachelor’s degree? Round your answer to the first decimal place (e.g. 9.9).
Q5. Use exactly the same scenario as for Q1.What wages will firms pay to minority workerswithoutbachelor’s degree?Round your answer to the first decimalplace (e.g. 9.9).
Q6. Based on youranswers toQ4 and Q5, in the table below fill out thenetbenefit of each educational choice for minority workers, and thenpredict the education attainment of the minority workers.

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Robert · Accepted Answer

Q1. Consider the signaling model of educational choice. Assume that a low ability majority 
individual has the same productivity   as a low ability minority (both have marginal 
productivity of 5) and a high ability majority individual has the same productivity as a high 
ability minority (both have marginal productivity of 10). Half of all majority workers and half 
of all minority workers are high ability. The firms do not observe workers’ ability levels. 
  
Firms assume that majority individuals with bachelor’s degree must be high ability workers. 
However, because minority households have less wealth on average than majority 
households, firms do not assume that minority workers with less than bachelor’s degree are 
low ability (as it may instead simply reflect the greater cost of education for those from 
families with fewer resources). As a result, firms pay different wages to 
majorityworkers based on their education, but treat all minorities the same regardless of their 
education.
Assume that the cost of getting bachelor’s degree is 3 for high ability worker and 6 for low 
ability workers.

Q1. Consider the signalling model of educational choice. Assume that alow ability majority individual has the same productivity as a low ability minority (both have marginal productivity of 5) and...

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