Before doing the analysis, describe, what would happen in a separating equilibrium to this game.What will you (as the VC) do, what will the two worker types do? Keep your answer brief.

Question 3(30 points)

You are the Vice President of EXAMPLE CORP in charge of human resources. You are in charge of allocating workers to either of two production plants, STRESS and MELLOW. There are two types of workers, fast and slow. You would like to have the fast workers inplant STRESS and the slow workers in plant MELLOW. Each worker knows whether they are fast or slow, but due to the production process,you cannot differentiate worker types. Work in STRESS is paid £2000 per month;in MELLOW workers earn £500per month. Workers can invest in job training certificates to show that they are qualified for STRESS. Fast workers will spend the equivalent of £30 per month for a certificate;slow workers take longer and will spend the equivalent of £60 per month. Each worker can get multiple certificates.

As the VC,you can determine how many certificates you require for workers to be sent to STRESS for a month.

a)Before doing the analysis, describe, what would happen in a separating equilibrium to this game.What will you (as the VC) do, what will the two worker types do? Keep your answer brief.

b)In this game,we could get two pooling equilibria. Without doing any math, describe what they would look like, as completely as you can in a brief answer.

c)Now do the full analysis.What is the set of possible N that will accomplish the separating equilibrium? What is the actual N you would choose and why?

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