There are two types of worker, high ability and low ability. High-ability workers generate gross profit of A on the job and low-ability generate nothing. Education does not make workers more productive, but is costly to obtain (cH for high ability workers and cL for low ability ones). Let w be the wage that all firms in the economy pay by regulatory mandate. Suppose the worker obtains utility
given by the wage (if the worker is employed, 0 if not) minus the cost of education (if any). There is no disutility from work. Which condition is required if only the high-ability type is to obtain an education in equilibrium?
a. cH < w < cL.
b. cL < w < cH.
c. cH < cL < w.
d. cL < cH < w.
a
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