In the town of Enigma there are two types of workers, the noses, whose work costs 1,000 euros a month, and the gentlemen, whose work costs 2,500 euros a month. Enigma has exactly twice as many big noses as there are gentlemen. Big noses are exactly the same as gentlemen and they are downright liars. If asked, they would maintain that they are gentlemen. Gentlemen always tell the truth. Supervising everyone’s work is too expensive to be worth it. In the old days, there was no way to distinguish between the two types of labor, so everyone earned the same wage. If labor markets were competitive, what was this salary?
(a) A teacher who loves to talk offered to give a free talk on macroeconomics to personal hygiene to workers in a small business once a month. These talks did not affect productivity, but both the big noses and the gentlemen found them terribly boring. For a big nose, an hour’s talk is as bad as losing 100 euros. For a gentleman, it is something as bad as losing 50 euros. Suppose the company gave all its workers a salary increase of 55 euros per month, but insisted that they attend the professor’s talks. What would happen to the company’s staff? And with the average productivity of your workers?
(b) Other companies observed that the workers who had attended the teacher’s talks were more productive than the others, so they tried to attract them. Since all those who agreed to listen to the original sharia were gentlemen, their salary rose to _______________.
(c) After observing the <>, the teacher decided to redouble his efforts. He found a huge auditorium where he could give a talk to all the Enigma workers who came to hear him. If employers believed that attending the teacher’s talks improved productivity to the extent that the productivity of the first small business improved and offered bonuses for attending the talks, who would attend? Once this result has been observed, what premium would companies pay to workers who had attended the teacher’s talks?
(d) The teacher was disappointed with the results of his mass talk and thought that if he gave more talks a month, his students would “learn more”, so he decided to take a course of 20 hours a month. Would there now be an equilibrium situation in which all gentlemen and no big noses attended his course and in which those who attended were paid according to their true productivity?
(e) What is the least number of hours of talk that the teacher could give to keep a separating balance?