-Consider the Spence Education Game Depicted in Figure 16

Multiple Choice

-Consider the Spence Education Game depicted in Figure 16.4. In the figure, all payoffs are in thousands of dollars per month. Suppose that Nature moves first and determines that there is a 30 percent of workers are low-productivity (LP) workers and 70 percent are high-productivity (HP) workers. The firm has determined that there is a 60 percent probability of hiring a high-school (HS) graduate who is also a high-productivity worker and a 75 percent probability of hiring a college (C) graduate who is a high-productivity worker. What is the optimal hiring strategy of a risk-neutral firm?

A) Hire only college graduates.
B) Hire college graduates 70 percent of the time.
C) Hire only high-school graduates.
D) Hire high-school graduates 30 percent of the time.
E) Hire high-school graduates 50 percent of the time.