ECO101H1 Chapter Notes - Chapter 7: Marginal Revenue, Capital Accumulation, Marginal Product

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Pvpianist = ,000 + ,000/(1. 05) = ,190. 48. Debbie is about to decide which career path to pursue. She has narrowed her options to two alternatives. She can either become a marine biologist or a concert pianist. In the second, she works in the labor market. If debbie becomes a marine biologist, she will spend ,000 on education in the first period and earn ,000 in the second period. If she becomes a concert pianist, she will spend ,000 on education in the first period and then earn ,000 in the second period. (a) suppose debbie can lend and borrow money at a 5 percent annual rate. Debbie will compare the present value of income for each career choice and choose the career with the largest present value. If the discount rate is 5 percent, and. If the rate of interest is 15 percent, however, the present value calculations become and.

Related Questions

Mary has two possible career paths. She can become either a biologist or a concert pianist. Mary lives for 2 periods. In the first period, she gets the appropriate education for her career. In the second period, she works in the labor market. If Mary becomes a biologist, she will spend $15,000 on education in the first period and earn $475,000 in the second period. If she becomes a concert pianist, she will spend $38,000 on education in the first period, and then she will earn $500,000 in the second period.

a) Suppose Mary can lend and borrow money at a market interest rate of 10 percent between the two periods. Which career will she pursue? Briefly explain your answer. b) Suppose the market interest rate falls to 2 percent. Would Mary choose a different career path than in (a)? Briefly explain why this is the case.

sapphirechinchilla539

Logan is about to decide which career path to pursue. She has narrowed her options to two
alternatives, mechanical engineer or economist. Assume she lives for two periods. In the rst, she
gets an education. In the second, she works in the labor market. If Logan becomes an economist,
she will spend $12,000 on tuition and 3,000 on books in the rst period and earn $472,000 in
the second period. If she becomes a mechanical engineer, she will spend $37,000 on tuition and
3,000 on books in the rst period and then earn $500,000 in the second period. Assume Logan
must borrow enough money to pay for tuition and books, she can borrow money at a 5% rate per
period and her discount rate is also 5% per period.

What are the direct, and indirect costs of education faced by Logan? Discuss in general and
give her specific costs from this example.

What is the net present value of Logan's earnings as an economist, and as an engineer?

Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the student's investment projects:

Student	Return
Student	(Percent)
Yakov	4
Charles	7
Dina	15

Assume borrowing and lending are prohibited, so each student uses only personal savings to finance his or her own investment project.

Complete the following table with how much each student will have a year later when the project pays its return.

Student	Money a Year Later
Student	(Dollars)
Yakov	_________
Charles	_________
Dina	_________

Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate or.

If a studentâs expected rate of return is greater than r, he or she would choose to (lend, borrow).

Suppose the interest rate is 6 percent.

Among these three students, the quantity of loanable funds supplied would be $______, and quantity demanded would be $______.

Now suppose the interest rate is 12 percent.

Among these three students, the quantity of loanable funds supplied would be $______, and quantity demanded would be $______.

At an interest rate of ______%, the loanable funds market among these three students would be in equilibrium. At this interest rate, (Charles, Yakov, Yakov and Charles, Charles and Dina, Dina) would want to borrow, and (Charles, Yakov, Yakov and Charles, Charles and Dina, Dina) want to lend.

Suppose the interest rate is at the equilibrium rate.

Complete the following table with how much each student will have a year later after the investment projects pay their return and loans have been repaid.

Student	Money a Year Later
Student	(Dollars)
Yakov	_________
Charles	_________
Dina	_________

True or False: Only borrowers are made better off, and lenders are made worse off.

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ECO101H1 Chapter Notes - Chapter 7: Marginal Revenue, Capital Accumulation, Marginal Product

ECO101H1 Full Course Notes

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