Reference no: EM132502788

Signaling for Graduate School: Graduate schools have an interest in making sure that the students that are accepted into degree programs can complete them. Suppose there are two types of students those of high ability and those of low ability. Those of low ability must put in more effort into getting good grades as an undergraduate. Assume that the disutility (cost) of effort for every 1.0 of cumulative grade point average is $200,000 for low ability types and $150,000 for high ability types. Suppose a graduate school has two programs; a certificate program and a master's program. Both programs are free, take the same amount of time to complete, and students cannot work while completing the program. Only those with high abilities will be able to complete the masters program successfully, while everyone could complete the certificate program. Graduates of the master's program have lifetime earnings worth $1,100,000 and graduates of the certificate program have lifetime earnings of $500,000.

What should be the minimum undergraduate GPA requirement for entrance into the master's program? [Note you may get a range of GPAs that would result in low and high abilities truthfully declaring their type. Assume that competition among schools drives the GPA requirement to its minimum]