Suppose that capital markets are imperfect and some workers face borrowing constraints (cannot obtain loan to finance their education at the market interest rate). What will be the relationship between marginal benefit and marginal costs of education for these workers? (a) The marginal benefit of an additional year of schooling will be equal to the marginal cost. (b) The marginal benefit of an additional year of schooling will be higher than the marginal cost.

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Suppose that capital markets are imperfect and some workers face borrowing constraints (cannot obtain loan to finance their education at the market interest rate). What will be the relationship between marginal benefit and marginal costs of education for these workers?

(a) The marginal benefit of an additional year of schooling will be equal to the marginal cost.

(b) The marginal benefit of an additional year of schooling will be higher than the marginal cost.

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