Optimal Education Choice


1. Assume a person’s labor market active life has three periods after high school graduation(the day the person turns 18 years old).College age (4 years, until their 22nd birthday)

Junior professional age (until their 30th birthday)Senior professional age (from their 30th birthday until retirement)People that choose not to go to college work.

People that choose to go to college makeno money during the four years they are in school. After the three periods, the personretires on her 40th birthday. Furthermore, assume that the out-of-pocket expendituresof each year of college are $90,000, and that theyearlyearnings schedule is the following:

Professional AgeJuniorSeniorEducation LevelHS Graduate$30,000$45,000College Graduate$50,000$95,000Finally, assume a discount rate of 2%.(a) [15 points] Graph the age-earning pro±les.(b) [10 points] Will the person choose to go to college?2. Would your result to Q1 change if the discount rate is 3

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