laborps3

# laborps3 - Problem Set 3 (Due 6/10) 1. There are three...

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Economics 421 Spring 2004 Lich-Tyler Problem Set 3 ( Due 6/10 ) 1. There are three people who must make an optimal human capital investment decision. The following table shows what their annual earnings would be for a given level of schooling ! in thousands of dollars " : Years of schooling: 12 13 14 15 16 17 18 19 20 A s annual earnings: \$20 \$25 \$30 \$35 \$40 \$45 \$50 \$55 \$60 B s annual earnings: \$40 \$45 \$50 \$55 \$60 \$65 \$70 \$75 \$80 C s annual earnings \$25 \$30 \$35 \$40 \$45 \$50 \$55 \$60 \$65 a. Suppose the interest rate is 10%. Using the stopping rule for a continuous choice of years of schooling ! hint: involving the marginal rate of return ”" , predict how much education each person acquires. b. For each person, calculate the change in earnings for a change in schooling ! that is, ! Y S " . c. Now calculate across the population the difference in earnings for a difference in schooling ! for example, ! Y A ! Y B " S A ! S B " " . Why is this not the same answer as in part b.? ! Hint: why did Bill Gates drop out of college? " 2. Springfield Nuclear Power Plant has two workers, Smithers and Simpson. One of these workers has a productivity of \$100,000; the other has a
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## This note was uploaded on 03/19/2010 for the course ECON 480 taught by Professor Kinlaw during the Spring '08 term at UNC.

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