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【正文】 about $66,000。 therefore, investing in college is a good idea 169。2020 Pearson Education, Inc. Chapter 15 77 Investments in Human Capital ?Although NPV is positive, it is not very large ?Almost free entry system to attend college ?Free entry markets tend to lead to zero economic profits 169。2020 Pearson Education, Inc. Chapter 15 78 Should You Go to Business School? ?Getting an MBA often means a large increase in salary ?Can see the typical change in salary from getting an MBA from top business schools ?For US as a whole, average salary preMBA is about $45,000 and obtaining the MBA increases salary by about $30,000 169。2020 Pearson Education, Inc. Chapter 15 79 Should You Go to Business School? 169。2020 Pearson Education, Inc. Chapter 15 80 Should You Go to Business School? 169。2020 Pearson Education, Inc. Chapter 15 81 Should You Go to Business School? ?Assuming the $30,000 per year gain persists for 20 years ?Typical MBA takes 2 years and has expenses of about $45,000 ?Opportunity cost of fone preMBA salary is also $45,000 per year ?Total economic cost of getting MBA is $90,000 169。2020 Pearson Education, Inc. Chapter 15 82 Should You Go to Business School? ?Net present value of the investment is ?With real discount rate of 5%, NPV is about $158,000 212 )1(30. . .)1(30)1(9090RRRN P V ?????????169。2020 Pearson Education, Inc. Chapter 15 83 Should You Go to Business School? ?Why is payoff from MBA in Table so much greater than from 4year undergrad degree? ?Entry into many MBA programs, especially those listed in table, is highly selective and difficult ?Many more people apply than are accepted, so return remains high 169。2020 Pearson Education, Inc. Chapter 15 84 Should You Go to Business School? ?Financial decision is easy ?Although costly, return is very high ?But some find it more fun than others ?Many do not have undergraduate grades and test scores to go to business school ?You may find a career you like better, such as teaching or law 169。2020 Pearson Education, Inc. Chapter 15 85 Intertemporal Production Decisions – Depletable Resources ?Firms’ production decisions often have intertemporal aspects – production today affects sales or costs in the future ?Firms may gain experience, which lowers future costs ?Use of depletable resources – extracting the resource today means less is available in the future ?Must take these into account in decisions 169。2020 Pearson Education, Inc. Chapter 15 86 Intertemporal Production Decisions – Depletable Resources ?Scenario ?You are given an oil well containing 1000 barrels of oil ?MC and AC = $10/barrel ?Should you produce the oil or save it? ? If you only look at extraction costs versus price, you ignore an important piece – opportunity cost ? Decision depends on price today, but also on how fast you expect the price to rise in future 169。2020 Pearson Education, Inc. Chapter 15 87 Intertemporal Production Decisions – Depletable Resources ?If you expect price of oil to rise slowly, might be better off extracting today ?If you expect price of oil to rise rapidly, better off waiting and extracting later ?How fast must price rise to keep in ground? ?Value must rise at least as fast as the rate of interest ?Can show this mathematically 169。2020 Pearson Education, Inc. Chapter 15 88 Intertemporal Production Decisions – Depletable Resources ?Scenario ?Pt = price of oil this year ?Pt+1 = price of oil next year ?C = extraction costs ?R = interest rate tI n d if f e r e n Ifnow o i l t h e a l l S e l l Ifg r o u n d t h e in o i l t h e K e e p If:))(1()(:))(1()(:))(1()(111cPRcPcPRcPcPRcPtttttt???????????????169。2020 Pearson Education, Inc. Chapter 15 89 Intertemporal Production Decisions – Depletable Resources ?Do not produce if you expect its price less its extraction cost to rise faster than the rate of interest ?Extract and sell all of it if you expect price less cost to rise at less than the rate of interest ?But how fast will the price of oil rise? 169。2020 Pearson Education, Inc. Chapter 15 90 The Behavior of Market Price ?If OPEC cartel didn’t exist, could estimate oil prices by production decisions of producers ?To maximize return, producers will follow production rule stated previously ?Price minus marginal cost must rise at exactly the rate of interest ?Why? 169。2020 Pearson Education, Inc. Chapter 15 91 The Behavior of Market Price ?If price – MC rose faster than R, no one would produce oil ?This would drive up market price of oil ?If price – MC rose slower than R, everyone would try to sell all their oil ?This would drive down the market price of oil ?Can show how market price must rise given these situations 169。2020 Pearson Education, Inc. Chapter 15 92 Price of an Exhaustible Resource Time Price Quantity Price c c Marginal Extraction Cost T PT P0 P c P0 Demand 169。2020 Pearson Education, Inc. Chapter 15 93 Price of an Exhaustible Resource ?Notice P MC ?Is it a contradiction to the petitive rule that P = MC? ? Total marginal cost must include extraction costs AND opportunity cost ?User cost of production ? Opportunity cost of producing and selling a unit today, making it unavailable for production and sale in the future 169。2020 Pearson Education, Inc. Chapter 15 94 Price of an Exhaustible Resource ?P = MC ?MC = extraction cost + user cost ?User cost = P marginal extraction cost ?User cost rises over time ?As resource remaining in ground bees scarcer, opportunity cost of depleting another unit bees higher 169。2020 Pearson Education, Inc. Chapter 15 95 Resource Production by a Monopolist ?How would a monopolist choose their rate of production? ?Value of unit is