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Suppose the decision to acquire schooling depends on three factors- preferences (joy of learning), costs (monetary and physic), and individual-specific returns to education. a. Explain how each of these factors affects one’s optimal amount of schooling. b. Using these three factors, explain why someone who faces a very steep wage schooling locus may still opt to obtain very little schooling. c. Consider two groups of people- Alphas and Betas. The cost of schooling is the same for each. The average level of schooling and salary for Alpha types is 15 years and $120,000, while the average level of schooling and salary for Beta type is 13 years and $100,000. Why is it that 10%, which is calculated as ($120,000-$100,000)/(15-13), is not a good estimate of the annual return to an additional year of education? d. Suppose you know that the actual annual rate of return on a year of education is 5% for both types. Given the numbers in par (c), which type (Alphas or Betas) most likely receives more pure enjoyment from education?
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