Persons marginal rate of substitution

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1. State whether the following statements are true, false, or uncertain, and explain why.

a. Assume a person is working 40 hours per week. If the wage rate is greater than the person’s marginal rate of substitution (MRS) at 40 hours, he or she would maximize utility by working more hours.

b. Persons with more education will be able to earn (on average) a higher wage; hence their probability of labor force participation is higher.

c. Assume business firms agree to pay the tuition for any of their employees who are attending college. This will raise the private rate of return to an investment in college, but will leave the social rate of return unchanged.

d. Additional years of education must make people more productive on the job. Otherwise, firms would not find it profitable to pay more-educated workers a higher wage than less-educated workers.

Reference no: EM13735541

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