The next two questions refer to the following 2-period search model: The wage of

Question

The next two questions refer to the following 2-period search model: The wage offers in a given period are distributed uniformly on [$1000,$2000], the unemployment benefit is S1100 per period, and the search cost is S85 per period. Each worker has lifetime utility given by U = m1 + m2, where m, is the worker's income in period t (net of the search costs). There is no discounting 5. The workers' reservation wage in the first period is A. $1,100 B. $1,185 C. $1,260 D. $1,300 E. $1,340 6. The probability a given worker will remain unemployed in period 1 is A. 0.16 B. 0.26 E. 0.38 C. 0.36 D. 0.22

Explanation / Answer

5-

The reservation wage of worker = unemployment benifit + searching cost = 1100+ 85 =1185

6- the probability of given worker will remain unemployed=0.16

reasoning =1000/1185=0.156=0.16

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