1. Becky works in sales but is considering quitting work for two years to earn a master's of business administration. Her current job pays $90,000 per year (after taxes), but she could earn $130,000 per year (after taxes) if she had an MBA. Tuition is $70,000 per year, and the cost of an apartment near campus is equal to the $20,000 per year that she is currently paying. Becky's discount rate is 6 percent per year. She just turned 48 and plans to retire when she turns 60, whether or not she gets her MBA. Given this information, should she go to school to earn her MBA? Explain carefully. . (Appendix 9A). Suppose that the supply curve for optometrists is given by Jf,S = 6 + 0.6 W and that the demand curve oo is given by L =50 -W, where W = annual earnings in thousands of dollars per year and L = thousands of optometrists. a. Find the equilibrium wage and employment levels. b. Now, suppose that the demand for optometrists increases and that the new demand curve is L, = 66 W. Assume that this market is subject to the \"cobweb\" phenomenon explained in Appendix 9A, in that it takes about three years to produce people who specialize in optometry. While this adjustment is taking place, the short-run supply of optometrists is fixed. Calculate the wage and employment levels in each of the first three rounds, and find the new long-run equilibrium. Draw a graph to show these events. 3. Suppose that you are offered $100 now or $125 in five years. Let the interest rate be 4 percent. Calculate the present value of the $125 option. Which option should you take if your goal is to choose the option with the larger present value? 4. Prepaid college tuition plans, also known as prepaid education arrangements (PEAs), allow you to prepay college tuition at present-day prices. The value of the investment is guaranteed by the state to cover public college tuition, regardless of its future cost. You are considering the purchase of an education certificate for $25,000, which will cover the future tuition costs of your eight-year-old daughter. You expect the tuition costs of your daughter's bachelor's degree to total $50,000 in 10 years. What would your personal discount rate need to be in order for it to be worthwhile for you to make the investment and purchase the certificate? 5. Theodore is considering a one-year training program, which charges $20,000 in tuition, to learn how to install airport-screening equipment. If he enrolls in the program, his opportunity cost in forgone income is the $100,000 per year that he can now earn. After completing the program, he is promised a job for five years that has a yearly salary of $130,000. (After five years, the equipment is expected to be obsolete, but Theodore plans to retire at that time anyway.) Assume that Theodore's personal discount rate is 5 percent. Should Theodore enroll in the program? Why? (Show vour calculations.)
