I need help with this question!
1. Stephanie has just finished high school, and expects to live two more periods, period
1 and period 2. She has two career paths open to her: under path A she can enter the
work force and start earning money immediately; under path B she can go to college
in period 1 at a cost and work in period 2. If she chooses option A, she will earn
$50,000 in each period. Under option B, she pays a cost of $150,000 in period 1 but
earns $300,000 in period 2. Stephanie can borrow and save at an interest rate r.
a. For what value of r will Stephanie be indifferent between career paths A and
B?
b. Let v(c) be an increasing and concave function, and suppose Stephanies
preferences over consumption in period 1 and 2 are described by the utility
function u(c1,c2)= v(c1)+ v(c2). If the interest rate is zero, how much will
Stephanie borrow in period 1, and what will her consumption in the two
periods be?
