Labor Economics
Labor Economics
8th Edition
ISBN: 9781260484434
Author: George Borjas
Publisher: Mcgraw-hill Higher Education (us)
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Chapter 6, Problem 2P
To determine

The education path that maximizes Person P’s net present value.

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Mark earns $18,000 a month as a physician.  He becomes disabled under an own occupation definition policy with a 50% prior wages clause because he lost his hearing in a hunting accident.  He returns to work as a researcher making $3,000 per month, a reduction of 83.33%.  He has a residual benefit provision in his disability policy that calls for monthly benefits of $12,000.  What will be his total income per month including any residual benefits? $3,000 (one time payment) $12,000 (the greater of his salary or the disability benefits) $13,000 (the $3,000 plus $10,000 from the residual) $15,000 (the $12,000 plus the $3,000)
Debbie is about to choose a career path. She has narrowed her options to two alternatives. She can become either a marine biologist or a concert pianist. Debbie lives two periods. In the first, she gets an education. In the second, she works in the labor market. If Debbie becomes a marine biologist, she will spend $15,000 on education in the first period and earn $472,000 in the second period. If she becomes a concert pianist, she will spend $40,000 on education in the first period and then earn $500,000 in the second period.a. Suppose Debbie can lend and borrow money at a 5 percent rate of interest between the two periods. Which career will she pursue? What if she can lend and borrow money at a 15 percent rate of interest? Will she choose a different option? Why?b. Suppose musical conservatories raise their tuition so that it now costs Debbie $60,000 to become a concert pianist. What career will Debbie pursue if the interest rate is 5 percent?
John is an economist working for Ministry of Tourism in Suva, earning $30,000 per year. There are, say, three alternative careers available for John. He can work for Reserve Bank or Ministry of Economy in Suva for $25,000 and $28,000 per year respectively. Still another alternative is that he can set up his own economic consultancy firm, expecting to make a profit of $27,500 a year for himself. What is John’s opportunity cost of working in Ministry of Tourism?
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