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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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