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3. Suppose there are two types of persons: high and low-ability. A particular diploma costs a [4 pt
high-ability person $15,000 and costs a low-ability person $25,000. Firms wish to use education as
a screening device where they intend to pay $40,000 to workers without a diploma and $K to
those with a diploma. In what range must K be to make this an effective screening device?

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3 Suppose there are two types of persons high and lowabil.pdf

  • 1. 3. Suppose there are two types of persons: high and low-ability. A particular diploma costs a [4 pt high-ability person $15,000 and costs a low-ability person $25,000. Firms wish to use education as a screening device where they intend to pay $40,000 to workers without a diploma and $K to those with a diploma. In what range must K be to make this an effective screening device?