6. (8 points) A worker is deciding when to get on-the-job training. Assume that

Question

6. (8 points) A worker is deciding when to get on-the-job training. Assume that there are three periods. If the worker does not get any training, then she earns 40 in period 1, 40 in period 2, and 40 in period 3. If the worker gets training only in period 1, then she earns 10 in period 1, 60 in period 2, and 60 in period 3. If the worker gets training only in period 2, then she earns 40 in period 1, 10 in period 2, and 60 in period 3. If the worker gets training in both periods, then she earns 10 in period 1, 30 in period 2, and 80 in period 3. Assnime that there is no discounting between periods. (a) Does the worker get training in period 1? (b) Does the worker get training in period 2?

Explanation / Answer

(a) if the worker gets training in period 1 then the amount of total earnings = 10 (for period 1)+ 60 (for period 2) + 60 (for period 3) = 130.

(b) if the worker gets training in period 2 then the amount of total earnings = 40 (for period 1)+ 10 (for period 2) + 60 (for period 3) = 110.

Thus the earning of the worker is maximized when training is given in period 1.

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