20 2EH OC+EH O2(C+EH) OC+EH+((C+EH)/(1+r)) 11. Consider a world in which all individuals complete high school, and then they have T years remaining before they retire. Upon graduation from high school, individuals choose between the following two options: (1) start working right away with just a high school degree, or (2) attend two years of college in order to acquire an associate's degree before they enter the work force. Assume that college students are unable to work while they are attending college. Define the following variables: etc.) EH represents the annual earnings of a high school graduate EA represents the annual earnings of someone with an associate's degree C represents the annual direct costs of attending college (such as tuition, books, r represents the interest rate Assume that EA>EH. Also assume that individuals seek to maximize their lifetime income. Derive an equation determining whether a person will choose to attend college. Write this equation in a form which shows that the person will attend college only if the lifetime earnings gains from an associate's degree exceed the total costs of acquiring this degree. In this situation, what is the present discounted value (PDV) of the total costs (including opportunity costs) of acquiring an associate's degree?
20 2EH OC+EH O2(C+EH) OC+EH+((C+EH)/(1+r)) 11. Consider a world in which all individuals complete high school, and then they have T years remaining before they retire. Upon graduation from high school, individuals choose between the following two options: (1) start working right away with just a high school degree, or (2) attend two years of college in order to acquire an associate's degree before they enter the work force. Assume that college students are unable to work while they are attending college. Define the following variables: etc.) EH represents the annual earnings of a high school graduate EA represents the annual earnings of someone with an associate's degree C represents the annual direct costs of attending college (such as tuition, books, r represents the interest rate Assume that EA>EH. Also assume that individuals seek to maximize their lifetime income. Derive an equation determining whether a person will choose to attend college. Write this equation in a form which shows that the person will attend college only if the lifetime earnings gains from an associate's degree exceed the total costs of acquiring this degree. In this situation, what is the present discounted value (PDV) of the total costs (including opportunity costs) of acquiring an associate's degree?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:20
2EH
OC+EH
O2(C+EH)
OC+EH+((C+EH)/(1+r))
Transcribed Image Text:11. Consider a world in which all individuals complete high school, and then they have T
years remaining before they retire. Upon graduation from high school, individuals choose
between the following two options: (1) start working right away with just a high school
degree, or (2) attend two years of college in order to acquire an associate's degree before
they enter the work force. Assume that college students are unable to work while they are
attending college. Define the following variables:
etc.)
EH represents the annual earnings of a high school graduate
EA represents the annual earnings of someone with an associate's degree
C represents the annual direct costs of attending college (such as tuition, books,
r represents the interest rate
Assume that EA>EH. Also assume that individuals seek to maximize their lifetime income.
Derive an equation determining whether a person will choose to attend college. Write this
equation in a form which shows that the person will attend college only if the lifetime
earnings gains from an associate's degree exceed the total costs of acquiring this degree.
In this situation, what is the present discounted value (PDV) of the total costs (including
opportunity costs) of acquiring an associate's degree?
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