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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