Question
2. Suppose that Carls wage-schooling locus is given by: Years of schooling 6 7 8 9 10 11 12 13 14 Earnings ($) 10,000 12,800
2. Suppose that Carls wage-schooling locus is given by: Years of schooling 6 7 8 9 10 11 12 13 14 Earnings ($) 10,000 12,800 16,000 18,500 20,350 22,000 23,100 23,900 24,000 a. Derive the marginal rate of return schedule. When will Carl quit school if his discount rate is 5 percent? What if the discount rate is 10 percent? b. Suppose the government imposes an income tax of 20 percent on both labor earnings. Derive a new wage-schooling locus and marginal rate of return schedule. What is the impact of this income tax on Carls educational attainment?
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