Question 2

Mary is finishing primary school and she is deciding whether or not to go to secondary school. Mary, like everyone else in the world, lives only for two periods after primary school.In the first period, she could work at the diamond factory (without secondary school) for a salary of Y_p, or instead, Mary could go to secondary school.If Mary does go to secondary school in the first period, she'll have to pay 5,000 CFA in fees (tuition and books) but she also receives 5,000 CFA from working in her family's business.In the second period, had she not gone to secondary school, Mary would continue to earn Y_p.With a secondary school degree in the first period, Mary would earn Y_sin the second period.Assume that the rate of interest at which Mary can borrow or lend money is i.

a)What are Mary's costs (direct and indirect) of going to secondary school?

b)What are Mary's benefits of going to secondary school?

c)Working with present value methods, show that Mary will go to secondary school in the first period if: