7 Suppose the following model describes the relationship between annual salary (salary) and the number of previous years of labor market experience (exper): log(salary) = 10.6 + .027 exper. (i) What is salary when exper = 0? When exper = 5? (Hint: You will need to exponentiate.) (ii) Use equation (A.28) to approximate the percentage increase in salary when exper increases by five years. (iii) Use the results of part (i) to compute the exact percentage difference in salary when exper = 5 and exper = 0. Comment on how this compares with the approximation in part (ii).

7 Suppose the following model describes the relationship between annual salary (salary) and the number of previous years of labor market experience (exper): log(salary) = 10.6 + .027 exper. (i) What is salary when exper = 0? When exper = 5? (Hint: You will need to exponentiate.) (ii) Use equation (A.28) to approximate the percentage increase in salary when exper increases by five years. (iii) Use the results of part (i) to compute the exact percentage difference in salary when exper = 5 and exper = 0. Comment on how this compares with the approximation in part (ii).

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.12P

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