Interest rate for an infinity time period.

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Chapter 18, Problem 3P

To determine

Interest rate for an infinity time period.

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Suppose that workers can go to firms without training and earn $40,000 per year for the remainder of their work life (suppose that is 30 years). Assume a zero-interest rate. Further, suppose that Gritz Ltd. (a fictional employer) provides firm specific training at a cost of $25,000 in the first year and the worker produces nothing during that first year. The training will increase the worker's productivity to $45,000 in years 2-30. If Gritz Ltd. pays workers $40,000 per year for 30 years and can force workers to stay for 30 years, should it increase or decrease the number of workers to maximize profits? Explain the numerical basis for your conclusion. b) If Gritz Ltd. cannot force workers to stay for the 30 years, how should it structure pay to increase the chance that the worker will stay? How will this achieve the desired objective?

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