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Ann and Betty must decide whether to pursue a blue or white collar career. A blue collar career entails working for two periods while a

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Ann and Betty must decide whether to pursue a blue or white collar career. A blue collar career entails working for two periods while a white collar career entails going to school for one period and working for one period. The total direct costs (tuition, books) of schooling are $20,000. The earnings possibilities are as follows: Ann's Earnings Possibilities Occupation Period 0 Period 1 Blue Collar $15, 000 $15, 000 White Collar $20, 000 $58, 000 Betty's Earnings Possibilities Occupation Period 0 Period 1 Blue Collar $25, 000 $25, 000 White Collar $20, 000 $70, 000 The minus signs indicate that college costs are, in fact, costs. Both Ann and Betty discount the future at 10%. a) (4 Points) Calculate the net present values (PVs) of each of the career paths for Ann and Betty. Who will choose white collar work (if anyone)? Who will choose blue collar work (if anyone)? Please be sure to show all work. b) (4 Points) Suppose a researcher wants to estimate the college PV differential, PVWhite - PVBlue, using data on Ann and Betty. What would be the "naive" differential that would be calculated based on what the researcher can observe? How does this "naive" return differ, if at all, from the true return? Explain briefly but precisely. c) (2 Points) Suppose that the government decided that too few individuals were going to college, and that they would make college absolutely free of direct costs to students. TFU: This policy would improve national welfare by about $15,900. HINT: You should not get lost in arithmetic here. Think about total societal costs and benefits. What maximizes total net output

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