Consider the following information. For Group A the cost of attaining an educati

Question

Consider the following information. For Group A the cost of attaining an educational
level is CA(y)=$6,000y and for Group B this is CB(y)=$10,000y.
Employees will be offered $50,000 if they have y<y*, where y* is an educational
threshold determined by the employer. They will be offered $130,000 if the have y>y*.


(a) What is the lowest level of y* that still allows the separate the groups (i.e., that only
high productivity people can meet).
(b) What is the highest level of y* that can still be met by high productivity people?

Explanation / Answer

The expected benefit from crossing the threshold is 130000-50000=80,000. So you basically have to find the range in which Group A will benefit and Group B won't. The bottom end for this range (i.e. the lowest amount of years of education needed for Group A to hit $130,000) is the amount JUST above when Groub B can't get it. This is 80,000/10,000= 8 years. This answers part (a). The high end for this range is the most costly point (i.e. the most amount of years) where it's still worth it for group A.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.