Suppose that the wage of the worker with the schooling level S and ability A is given by w(A,S) = A √ S. Every period of schooling the worker has to pay tuition F. Government subsidizes M of her tuition. 1. If ability of worker is A = 2, the market interest rate is r = 0.02 the tuition is F = 8, and the government pays M = 3 of the tuition, what is the optimal level of schooling for this worker. 2. Suppose the worker is uncertain about the wage she might receive after the graduation. With the probability 0.4 she expects the wage to be wL(A,S) = 0.5A √ S, with probability 0.5 she expects the wage to be wM(A,S) = A √ S, and with probability 0.1 she expects the wage to be wH(A,S) = 3A √ S. If the workers is risk-neutral, what is her optimal level of schooling? (use parameters from 1.)
Suppose that the wage of the worker with the schooling level S and ability A is given by w(A,S) = A √ S. Every period of schooling the worker has to pay tuition F. Government subsidizes M of her tuition.
1. If ability of worker is A = 2, the market interest rate is r = 0.02 the tuition is F = 8, and the government pays M = 3 of the tuition, what is the optimal level of schooling for this worker.
2. Suppose the worker is uncertain about the wage she might receive after the graduation. With the probability 0.4 she expects the wage to be wL(A,S) = 0.5A √ S, with probability 0.5 she expects the wage to be wM(A,S) = A √ S, and with probability 0.1 she expects the wage to be wH(A,S) = 3A √ S. If the workers is risk-neutral, what is her optimal level of schooling? (use parameters from 1.)
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