Kate has just finished high school and is considering what to do next. She has narrowed down her options to two alternatives. She will either become an anthro- pologist or a chef. Suppose that Kate will live 2 additional periods. In the first, she gets her education. In the second, she works in the labor market. If Kate becomes an anthropologist, she will spend $15,000 on tuition and books. She will then earn $472,000 in the second period. If she becomes a chef, it will cost her $40,000 in the first period, but she will earn $500,000 in the second period. Suppose that the in- terest rate, r, is 5 percent. Suppose Kate wants to maximize the present discounted value of her lifetime earnings, which of the following statements is correct? (a) If Kate chooses to be an anthropologist, the present value of lifetime earning net off cost of training is $472,000. (b) If Kate chooses to be an anthropologist, the present value of lifetime earning net off cost of training is $434,523.81. (c) If Kate chooses to be a chef, the present value of lifetime earning net off cost of training is $434,523.81. (d) If Kate chooses to be a chef, the present value of lifetime earning net off cost of training is $396,190.47. (e) If Kate chooses to be a chef, the present value of lifetime earning net off cost of training is $460,000.00. (f) Kate would choose to be an anthropologist.
Kate has just finished high school and is considering what to do next. She has narrowed down her options to two alternatives. She will either become an anthro- pologist or a chef. Suppose that Kate will live 2 additional periods. In the first, she gets her education. In the second, she works in the labor market. If Kate becomes an anthropologist, she will spend $15,000 on tuition and books. She will then earn $472,000 in the second period. If she becomes a chef, it will cost her $40,000 in the first period, but she will earn $500,000 in the second period. Suppose that the in- terest rate, r, is 5 percent. Suppose Kate wants to maximize the present discounted value of her lifetime earnings, which of the following statements is correct? (a) If Kate chooses to be an anthropologist, the present value of lifetime earning net off cost of training is $472,000. (b) If Kate chooses to be an anthropologist, the present value of lifetime earning net off cost of training is $434,523.81. (c) If Kate chooses to be a chef, the present value of lifetime earning net off cost of training is $434,523.81. (d) If Kate chooses to be a chef, the present value of lifetime earning net off cost of training is $396,190.47. (e) If Kate chooses to be a chef, the present value of lifetime earning net off cost of training is $460,000.00. (f) Kate would choose to be an anthropologist.
Chapter2: Scarcity And Opportunity Costs
Section: Chapter Questions
Problem 14E
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Transcribed Image Text:Kate has just finished high school and is considering what to do next. She has
narrowed down her options to two alternatives. She will either become an anthro-
pologist or a chef. Suppose that Kate will live 2 additional periods. In the first, she
gets her education. In the second, she works in the labor market. If Kate becomes
an anthropologist, she will spend $15,000 on tuition and books. She will then earn
$472,000 in the second period. If she becomes a chef, it will cost her $40,000 in the
first period, but she will earn $500,000 in the second period. Suppose that the in-
terest rate, r, is 5 percent. Suppose Kate wants to maximize the present discounted
value of her lifetime earnings, which of the following statements is correct?
(a) If Kate chooses to be an anthropologist, the present value of lifetime earning
net off cost of training is $472,000.
(b) If Kate chooses to be an anthropologist, the present value of lifetime earning
net off cost of training is $434,523.81.
(c) If Kate chooses to be a chef, the present value of lifetime earning net off cost
of training is $434,523.81.
(d) If Kate chooses to be a chef, the present value of lifetime earning net off cost
of training is $396,190.47.
(e) If Kate chooses to be a chef, the present value of lifetime earning net off cost
of training is $460,000.00.
(f) Kate would choose to be an anthropologist.
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