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There are one firm and two types (low-ability and high-ability) of workers. The cost of attending a college is $8,000 for a high-ability person and $20,000 for a low-ability person. The value of high and low ability workers for the firm is $50,000 and $30,000 respectively. The proportion of each type in the population is 1/2.Available actions for the firm are:F1: Pay $32,500 regardless of worker's college educationF2: Pay $40,000 for college graduates and $25,000 for those who do not attend a collegeAvailable actions for a low-ability worker are:L1: Attend a collegeL2: Not attend a collegeAvailable actions for a high-ability worker are:H1: Attend a college H2: Not attend a collegea. What is a Nash equilibrium? What is this equilibrium called?b. Suppose one action for the firm (F1) is replaced by Pay $25,000 regardless of worker's college education. What is a Nash equilibrium? What is this equilibrium called?

Macroeconomics, Economics

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