Question: Suppose there are two types of persons: high-ability and low-ability. A particular diploma costs a high-ability person $8,000 and costs a low-ability person $20,000. Firms

Suppose there are two types of persons: high-ability and low-ability. A particular diploma costs a high-ability person $8,000 and costs a low-ability person $20,000. Firms wish to use education as a screening device where they intend to pay $25,000 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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