Suppose that there is a training program that will increase a trainee’s earnings by

$1,000 per year before taxes and by $750 after taxes. The actual cost of the program is

$5,000 pertrainee, and the trainee must forgotwo months of earnings equal to $2,000 per month before taxes ($1,500 after taxes). Assume that the increase in earnings created by the training program lasts forever and that the trainee has a time horizon that is infinite.

a. Assume that the trainee does not pay tuition because the training is a public program. What is the (private) rate of return to the trainee? What is the rate of return of the program for society? (Hint: The rate of return for society takes into account all of the costs and benefits of the program. Earnings are counted before taxes.)

b. Suppose now that the trainee must pay $5,000 in tuition and that her discount rate is 6%. Assuming purely monetary motivation, will the person enroll in the training program?