🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Economics
1
answer
0
watching
53
views

There are two workers in the economy, A€, and B; A€ can go to school and B€ cannot. Education increases future income according to the following function: I(e)= 50(e)/(1+e). Total cost per year of schooling equals 2, and thus: mc(e)=2

a. Derive the marginal income function.
b. What is the optimal schooling level for worker A?

Suppose that educated workers also increase the productivity of a non-educated one, according to the following function: B(e)=e (i.e. the benefit for the non-educated worker for each year of schooling studied by the educated worker is 1).

c. What is the optimal schooling level for worker A from the social point of view?
d. How can you achieve it?
e. Explain the difference between your answers to b. and c.

Watch
1
answer
0
watching
53
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Joshua Stredder
Joshua StredderLv10
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Problem #1: Estimating the Marginal Return to Schooling Suppose Carl's wage-schooling locus is given by the following schedule: Years of Schooling Real annual earnings 8 $10,000 9 $12,800 10 $16,000 11 $18,500 12 $20,350 13 $22,000 14 $23,100 15 $23,900 16 $24,000 Suppose that the only cost of schooling is the opportunity cost of not working and earning money. Also, assume that Carl's life is infinitely long (this is a good approximation when the time horizon is long).

1. Derive the marginal rate of return schedule. (This is, calculate Carl's internal rate of return to each additional year of schooling).

2. When will Carl quit school if his discount rate is 4 percent? Why?

3. What will Carl's optimal schooling choice be if his discount rate is 12 percent? Why?

4. Suppose the government imposes an income tax of 20 percent. What is the effect of this income tax on Carl's educational attainment? Why?

Problem #2: Schooling Nancy is deciding on an optimal schooling strategy. She currently has zero years of schooling and knows she will live for 60 more years. In any given year she can either choose to add to her current level of schooling or she can work. If she decides to work, she will have an annual salary of S, where S is her current level of schooling (measured in years of schooling). If she decides to go to school, she will not have any income during that year, but her schooling 1 level will increase by 1 year. Schooling is otherwise free. Nancy's discount rate is r = 0. Nancy's objective is to maximize lifetime income.

1. What is Nancy's lifetime income as a function of her level of schooling, S?

2. What is Nancy's lifetime income if she gets no schooling? What is it if she goes to school for all 60 remaining years of her life? In words, describe the ”cost” to Nancy of choosing to attend school for 1 additional year.

3. Determine Nancy's optimal schooling level (hint: you can do this with calculus or by graphing her lifetime income and finding the level of schooling that maximizes that income).

4. During which part of Nancy's remaining life will she get her schooling?

Consider Spence's job-market signaling model with the following specifications. There are two types of workers, 1 and 2. The productivities of the two, as functions of the level of education E, are

W1 (E) =E, W2 (E)= 1.5E

The costs of education for the two types, as functions of the level of education, are C1 (E)= E2 /2 and C2 (E)= E2 /3.

Each worker's utility equals his or her income minus the cost of education. Companies that seek to hire theses workers are perfectly competitive in the labor market.

(a) If types are public information (observable and verifiable), find expressions for the levels of education, incomes, and utilities of the two types of workers.

Now suppose each worker's type is his or her private information.

(B) Verify that if the contracts of part (a) are attempted in this situation of information asymmetry, then type 2 does not want to take up the contract intended for type 1, but type 1 does want to take up the contract intended for type 2, so "natural" seperation cannot prevail.

(C) If we leave the contract for type 1 as in part (a), what is the range of contracts (education- wage pairs) for type 2 that can achieve separation?

(d) Of the possibel separating contracts, which one do you expect to prevail? Give a verbal but not a formal explanation for your answer.

(E) Who gains or loses from the information asymmetry? How much?

1. Another term for an investment good is

A) interest
B) savings
C) capital
D) rent
E) production

2. The opportunity cost of producing capital is

A) decreased current production of consumption goods
B) increased future production of consumption goods
C) the amount of roundabout production
D) abundant capital accumulation
E) the decreased amount of future capital available

3.

A marginal revenue product curve shows the change in

A) total revenue caused by a one-unit change in output, other things constant
B) total revenue caused by a one-unit change in an input, other things constant
C) total product caused by a one-unit change in output, other things constant
D) total product caused by a one-unit change in an input, other things constant
E) total revenue product caused by a one-unit change in the price of the output, other things constant

4.

Marginal revenue product for a price taker equals

A) MP x P
B) MP/MRC
C) MP x MRC
D) MRC/MP
E) MP/P

5.

Interest provides an incentive for households to defer current consumption

A) True
B) False

6.

An increase in the interest rate tends to increase the demand for loanable funds.

A) True
B) False

7.

Generally, the longer the maturity on a bond, the lower the interest rate.

A) True
B) False

8.

Corporations can obtain investment funds by

A) buying government securities
B) selling stock
C) increasing dividends
D) purchasing more capital
E) buying back stock

9.

Vertical integration has no effect on the internal organization of a firm; it only affects the outside markets.

A) True
B) False

10.

One reason a computer manufacturer may produce its own microchips rather than buy them is that it can maintain control over production quality.

A) True
B) False

11.

When a firm is no longer able to reduce its long-run average cost by expanding, it has achieved its minimum efficient scale of production.

A) True
B) False

12.

If a firm experiences economies of scope, per unit production costs fall as it produces more than one kind of product.

A) True
B) False

13.

Publications such as Consumer Reports magazine

A) increase the optimal amount of information gathered
B) reduce the optimal amount of information gathered
C) reduce the amount of common knowledge
D) raise the marginal benefit of information curve
E) make consumers perfectly informed

14.

The winner's curse is more likely when the value of a good at auction is uncertain.

A) True
B) False

15.

When a seller knows more about the condition of a used car than the buyer does, the information is said to be asymmetric.

A) True
B) False

16.

The three kinds of government regulation designed to alter or control firm behavior are:

A) Antitrust policy, lobbying, and social regulation
B) Economic regulation, antitrust policy, and lobbying
C) Social regulation, lobbying, economic regulation
D) Social regulation, economic regulation, and antitrust policy
E) Social regulation, antitrust policy, fiscal policy

17.

A monopoly is likely to charge a higher price than an otherwise similar competitive industry would be.

A) True
B) False

18.

Public policy can help achieve more efficient use of an economy's resources by eliminating all monopolies.

A) True
B) False

19.

Government attempts to prohibit monopolization of a market are known as

A) antitrust regulation
B) economic regulation
C) social regulation
D) anticompetitive regulation
E) Herfindahl regulation

20.

If the electric company is allowed by regulators to earn only a normal profit, it will produce at the point where

A) MR = MC
B) P = MC
C) MC = quantity demanded
D) P = AC
E) MR = AC

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in