Imagine there are two types of individuals, high types and low types. There is a degree that costs the high type $7500 to complete while costing the low type $13,000 to complete. Suppose a firm wants to use this degree to screen job applicants. They will pay those without the degree $35000, and those with the degree $"S". What must "S" be in order for this degree to separate high and low types? What would happen if this didn't hold? Draw a diagram of your findings.
Imagine there are two types of individuals, high types and low types. There is a degree that costs the high type $7500 to complete while costing the low type $13,000 to complete. Suppose a firm wants to use this degree to screen job applicants. They will pay those without the degree $35000, and those with the degree $"S". What must "S" be in order for this degree to separate high and low types? What would happen if this didn't hold? Draw a diagram of your findings.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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