Human Capital Investments. Suppose that the marginal cost of an additional unit of human capital is given by MC = 400 and the marginal benefit is given by MB = 800 ? 25HC , where HC is the number of units of human capital.
(a) Graph MB and MC as a function of HC. Calculate the optimal level of human capital investment, HC?
(b) The growing importance of computer skills in today’s economy leads firms to place a greater premium on human capital investments. As a result, the marginal benefit of an additional unit of human capital increases to MB = 800 ? 20HC. Re-answer part (a).