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3. Consider the Figure below which shows the present value of lifetime earnings (PVE) rms are willing to offer to workers who have attained different
3. Consider the Figure below which shows the present value of lifetime earnings (PVE) rms are willing to offer to workers who have attained different levels of education. Those workers who have completed 16 years or more of education (4 or more years after high school) will be offered a wage leading to a present value of lifetime income of $2,000,000 (PVEZ), while those completing less than 16 years of education will be offered a wage leading to a present value of lifetime income equal to $1,000,000 (PVEl). Lines CA and CB show the total cost of different levels of education for two types of workers. Type A workers are low-productivity workers while type B workers are high- productivity workers. 32 CA 30 28 26 24 22 e PVE2 20 ----------------------- PV ($100,000) 15 16 17 1 8 1 9 20 Education (years) a) What is the optimal level of education for a type A person? Why? b) What is the optimal level of education for a type B person? Why? 0) Is 16 years of education an effective way to distinguish low-productivity workers from high- productivity workers? Why or why not
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