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There are two types of MBA students, Movers and Shakers. Both types of students are valuable to potential employers but Movers are more valuable. Employers would be willing to pay a Mover a $150,000 salary, but only $100,000 for a Shaker. Unfortunately, it is difficult to tell the difference between the two. One key difference between the two types of students is in the pain that economics courses cause them. For Movers, an economics course causes about $6,000 in pain, at least that is how much salary they would be willing to give up to avoid an economics course. The Shakers value the pain at $9,000 per course.
a. A recruiting firm wants to devise a self-selection mechanism to separate the Movers and the Shakers. Once the two types are identified, they will be paid $150,000 and $100,000 respectively. What is the minimum number of economics courses that a firm can require a student to take in order to receive the Mover salary? What is the maximum number of courses?
b. Who bears the cost of signaling their quality?
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