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Nancy is deciding on an optimal schooling strategy. She currently has zero years of schoolingand knows she will live for 60 more years. In any given year she can either choose to add toher current level of schooling or she can work. If she decides to work, she will have an annualsalary of √S, where S is her current level of schooling (measured in years of schooling). Ifshe decides to go to school, she will not have any income during that year, but her schooling

1level will increase by 1 year. Schooling is otherwise free. Nancy's discount rate is r = 0.Nancy's objective is to maximize lifetime income.

1. What is Nancy's lifetime income as a function of her level of schooling, S?

2. What is Nancy's lifetime income if she gets no schooling? What is it if she goes toschool for all 60 remaining years of her life? In words, describe the "cost" to Nancy ofchoosing to attend school for 1 additional year.

3. Determine Nancy's optimal schooling level.

4. During which part of Nancy's remaining life will she get her schooling?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9746587

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