Date : March 14, 2010 SCENARIO: DISCRIMINATION Suppose that there are two types

Question

Date : March 14, 2010

SCENARIO: DISCRIMINATION

Suppose that there are two types of workers: 90% of the workersare type A, and 10% of the workers are type B. tYPE A and type BWORKERS ARE EQUALLY PRODUCTIVE: THE value of any workerscontribution to production is $10 per hour

Each firm would hire 100 workers if it hired any workers. Nofirm discriminates in any way againt type A workers, but every firmdiscriminates against type b workers in the same way:firms valuetype B workers at 80% of the value of their contribution toproduction.

If each type A and type B WORKER WERE PAID $10 PER HOUR, WHATWORKERS WOULD BE EMPLOYED?

A)bOTH type of workers would bbe emplyed

b)only type b workers would be employed.

c)only type A WORKERS WOULD BE EMPLOYED

D) NEITHER TYPE OF WORKER WOULD BE EMPLOYED

Explanation / Answer

Only type A workers would be hired because firms believe that type B workers can only produce 80% of what type A workers can produce. Firms want to maximize profit by getting the most out of their wages. Even though they contribute the same amount to production because of discrimination firms will hire only type A. So the answer is C

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