Suppose 10% of all workers are of high ability. If a firm knows a worker's ability, workers of low ability are paid $20,000 and workers of high ability are paid $30,000. Obtaining a university degree can signal high ability, and the cost of degree is $c.
a.) Under a pooling equilibrium, how much would a worker with degree be paid? How much would a worker without degree be paid?
b.) Under a separating equilibrium, how much would a worker with degree be paid? How much would a worker without degree be paid?
c.) What values of c would make a separating equilibrium possible?