The value of a worker's marginal product is $40 per hour for high-ability workers and $5 per hour for low-ability workers. The preferences of high-ability workers correspond to the utility function UH(E, W) = W - 5E, and the preferences of low-ability workers correspond to the utility function UL(E, W) = W - 8E. By law, everyone is required to attend at least ten years of school. Three-fourths of the population has low ability, and one-fourth has high ability. What is the most efficient separating equilibrium?
A. EL = 10; EH = 14.375
B. EL = 10; EH = 17
C. EL = 10; EH = 10
D. EL = 14.375; EH = 14.375
A. EL = 10; EH = 14.375
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