What is the benefit of the program

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Suppose there are 2 types of individuals:

a. "Type 1": PV of earnings with HS diploma :135.

                     PV of earnings without diploma:100.

b. "Type 2" : PV of earnings with diploma : 120.

                     PV of earnings without diploma : 100.   The PV of the costs of a HS diploma is 22 for both types.

 Question 2). a researcher sees only the following data:

     Education level              Average earnings

    No HS diploma                100

    HS diploma                       135

Based on this , he concludes that a HS diploma raises earnings by  35(or a net of 35-22=13) on averages. Is this logic flawed? Why or Why not?

Question 3) Suppose the government thinks the average benefits of a HS diploma are 35, while the costs are only 22. They begin a program that pays a prize of 3 for all who get a HS diploma. Now which types will get a HS diploma? What is the benefit of the program for each type?

Reference no: EM13902137

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