Julio will live and work forever, he borrows and lends at a 4 percent annual int
ID: 2550698 • Letter: J
Question
Julio will live and work forever, he borrows and lends at a 4 percent annual interest rate, and he has no out-of-pocket expense of attending school. The following table lists Julio's weekly wage for each grade of school that he completes:
A. For each grade, use the conventional method to compute Julio's marginal rate of return to schooling -> change in wage/wage
B. Julio's marginal rate of return to schooling falls to 2 percent at grade _____? (fill in the blank)
C. To maximize his wealth, Julio quits school after completing which grade?
D. If Julio chooses schooling s to maximize his marginal rate of return to schooling, he completes ______ grades. (fill in the blank)
E. Lea and Julio have the same wage-schooling curve, but Lea faces an 8 percent annual interest rate. At what grade does wealth-maximizer Lea finish her education?
Schooling (grade) Wage ($/week) Wage Change ($/week/grade) Marginal Rate of Return (%/grade) 8 1,059 9 1,175 10 1,293 11 1,409 12 1,522 13 1,628 14 1,726 15 1,812 16 1,885 17 1,941 18 1,980 19 2,000 20 2,000Explanation / Answer
(b)schooling falls to 2 % at grade 18
(c) grade 19
Scooling(grade) wage wage change marginal rate of return 8 1059 - - 9 1175 116 10.95% 10 1293 118 10.04% 11 1409 113 8.74% 12 1522 113 8.02% 13 1628 106 6.96% 14 1726 98 6.02% 15 1812 86 4.98% 16 1885 73 4.03% 17 1941 56 2.97% 18 1980 39 2% 19 2000 20 1.01% 20 2000 0 0Related Questions
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