Ñ4 Suppose that the wage of the worker withthe schooling level S and ability A is givenby w(A,S) = AVS. Every period of schoolingthe worker has to pay tuition F. Governmentsubsidizes M of her tuition.If ability of worker is A = 2, the marketinterest rate is r = 0.02 the tuition is F = 8,and the government pays M = 3 of thetuition, what is the optimal level ofschooling for this worker.Suppose the worker is uncertain about thewage she might receive after thegraduation. With the probability 0.4 sheexpects the wage to be wL(A,S) = 0.5AVS,with probability 0.5 she expects the wageto be wM (A,S) = AVS, and with probability0.1 she expects the wage to be wH(A,S) =3AVS. If the workers is risk-neutral, what isher optimal level of schooling? (useparameters from 2.1.)

Optimal Schooling Level is defined as the situation which occurs when the marginal benefit of…

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. 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

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. 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

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Chapter1: Making Economics Decisions

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Question

Ñ4

Suppose that the wage of the worker with
the schooling level S and ability A is given
by w(A,S) = AVS. Every period of schooling
the worker has to pay tuition F. Government
subsidizes M of her tuition.
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.
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) = 0.5AVS,
with probability 0.5 she expects the wage
to be wM (A,S) = AVS, and with probability
0.1 she expects the wage to be wH(A,S) =
3AVS. If the workers is risk-neutral, what is
her optimal level of schooling? (use
parameters from 2.1.)

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