Suppose there are two types of persons: high-ability and low-ability. To finish an undergraduate degree in sales from X University in 4 years costs the high-ability person $15,000 and costs the low-ability person $20,000.
A firm would like to use education as a signal and offer a 4-year contract with present value $120,000 to sales team members without an undergraduate degree and $K to sales managers, who are required to have undergraduate degrees.
Which of the following values of K will allow the firm to successfully sort high-skilled workers into management positions and low-skilled workers into team positions?