ECON 4531, Labor Economics

Text: Labor Economics, Borjas, 8th edition

1. Chelsea is about to choose a career path. She has narrowed her options to two alternatives. She can either become an economist or a ballet dancer. If Chelsea becomes an economist, she will spend $45,000 per year on education for 9 years and earn $140,000 per year for 40 years after graduation. If she becomes a ballet dancer, she will spend $60,000 per year on education for 8 years and then earn $175,000 per year for 40 years after that.

Suppose Chelsea can lend and borrow money at a 5 percent annual rate of interest. Which career will she pursue?