Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ellen is trying to decide whether to stay in her small-town home or move to the big city after college graduation (the last education she

Ellen is trying to decide whether to stay in her small-town home or move to the "big city" after college graduation (the last education she will ever get). The only job available to her in her hometown is in the family business at a yearly salary of $50,000 per year, and she will never get a raise. If she moves to the big city, her real wage starts at $25,000 per year and increases at x% per year. She plans to work for only 20 more years, her discount rate is r=.05, and the cost of living is assumed the same in both her hometown and the big city. What x makes her indifferent between staying in her hometown and moving to the big city if all she cares about is maximizing her present discounted value of earnings? (Excel or some equivalent will be useful here.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essays In Our Changing Order

Authors: Thorstein Veblen

1st Edition

1351311425, 9781351311427

More Books

Students also viewed these Economics questions