David is a high school senior. He must decide whether to work orgo to college. If he has a high school degree, he will make $20,000per year. If he has a college degree, he will make $35,000 peryear. To get a college degree, he must go to school for one periodat a tuition cost of $10,000. Assume David lives for 3 periods andhis discount is 0.1.
a) What is David’s direct cost of attending college? What is hisopportunity cost? What will he decide to do?
b) Now, assume David can get a full-ride scholarship (thus H =0). Now what will he do?
c) Since David is receiving a scholarship for his undergraddegree, he is now debating about going to grad school. If hedecides to get his PhD, he must go to school in the first period(undergrad) at a cost of $0, and he must go to school in the secondperiod (grad school) at a cost of $0. With a PhD, David can make$77,000 per year. Will David go to grad school? You only need tocompare undergrad and grad school.
