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-King-
01-30-2011, 10:19 PM
I have a feeling that this question should be easy, but I can't get it. I'm thinking that the benefits is supposed to outweigh the cost, but I keep getting the opposite. Any help?

http://img600.imageshack.us/img600/7500/ui2ik48a8bcd259viewattt.jpg

Captain Obvious
01-30-2011, 10:22 PM
I'm not doing the math, but if the costs outweigh the benefits then you shouldn't join the Peace Corps.

milkman
01-30-2011, 10:26 PM
What the hell are the benefits?

-King-
01-30-2011, 10:28 PM
What the hell are the benefits?

Right now, all I have for benefits are 45k satisfaction and 50k for learning french.

The costs are 105k for the salary/room and board, 8k for the physical and transportation, and 3k for experience.

jbwm89
01-30-2011, 10:42 PM
what school do you go to?

-King-
01-30-2011, 10:44 PM
what school do you go to?

Mizzou.

jbwm89
01-30-2011, 10:46 PM
Mizzou.

I took that class but it was 4 years ago. Sharon Ryan?

HonestChieffan
01-30-2011, 10:49 PM
Lots of Rape in Peace Corps

jbwm89
01-30-2011, 10:49 PM
Benefits:
Pay: 30,000
Language benefit: 50,000

Costs:
Opp cost of lost job – expenses x 3 years : 105,000
Physical: 8,000
Lifetime pay decrease: 30,000

-King-
01-30-2011, 10:49 PM
I took that class but it was 4 years ago. Sharon Ryan?

No. I could have taken her class, but it was too early in the day. I have Martin Pereyra.

jbwm89
01-30-2011, 10:50 PM
and the 45k for satisfaction i forgot.

-King-
01-30-2011, 10:51 PM
Benefits:
Pay: 30,000
Language benefit: 50,000

Costs:
Opp cost of lost job expenses x 3 years : 105,000
Physical: 8,000
Lifetime pay decrease: 30,000

Since you're already taking the 30k peace corp pay out of the cost, why would you need to list it as a benefit?

jbwm89
01-30-2011, 10:51 PM
No. I could have taken her class, but it was too early in the day. I have Martin Pereyra.

Pereyra sucks but Ryan is way worse, only C I have ever gotten at mu.

jbwm89
01-30-2011, 10:51 PM
when you take Macro take the agecon class with Duave instead of the regular econ.

-King-
01-30-2011, 10:52 PM
Pereyra sucks but Ryan is way worse, only C I have ever gotten at mu.

Yeah, I'm thinking that I'm going to learn more out of the weekly tutoring sessions that at the actual lecture.

alnorth
01-30-2011, 10:55 PM
Cool problem. I'll restate the conditions first.

#1 Peace corps stint would last for 3 years
#2 In those 3 years, your food and lodging is paid for, and you would get $10,000 per year.
#3 Alternatively, you can forget the peace corps and start working right away. $50,000 per year, minus $15,000 expenses for paying for your own room and board, net $35,000 per year
#4 If you join the peace corps, you will receive emotional enjoyment worth the equivalent to you of $15,000 per year in those 3 years.
#5 If you join the peace corps, you incur a one-time cost in the first year of $8,000
#6 This condition is worded vaguely. (eg "lifetime pay at 1,000 per year" could mean the present value of your life earnings is reduced by 3,000, or that your starting salary after the peace corps will be 49,000, or that it will be 47,000, or some other interpretation) I decided to assume that after you get back from the peace corps, you will be working for 49,000 per year.
#7 You will retire 30 years after you are done with the peace corps, or 33 years from today. So you'll either be working at your job for 30 years or 33 years.
#8 If you work for the peace corps, you will gain $50,000 of present value.

Join peace corps
Year 1: 10k - 8k + 15k + 50k = 67k
Years 2 and 3: 10k + 15k = 25k
Years 4 through 33: 49k - 15k = 34k
Total: 1.137MM

Don't join peace corps
Years 1 through 33: 50k - 15k = 35k
Total: 1.155MM

It's very close, but I'm also coming up with no. Since we are including non-monetary "emotional" gains, I don't know that it would be appropriate to evaluate what happens when you introduce an interest rate. (otherwise with the numbers this close and that lump sum for joining the peace corps, there could be some interest rate that makes them equal)

Even though you might think the answer "should be" join the peace corps, I wouldn't be surprised if it was no. This seems like a clever way to fool the student into thinking one answer just has to be right and twisting the numbers around to fit that conclusion instead of just doing the math.

edit: going back to condition 6, if that merely meant your present value is reduced by 3000, then you should join the peace corps.

jbwm89
01-30-2011, 10:57 PM
Yeah, I'm thinking that I'm going to learn more out of the weekly tutoring sessions that at the actual lecture.

that econ help lab thing helps, there is usually a pretty massive curve too.

Rain Man
01-30-2011, 10:58 PM
Peace Corps Benefits
Pay - $30,000
Personal - $15,000 x 3 = $45,000
Language - $50,000

Total Benefits - $125,000


Peace Corps Costs

Lost Pay - $35,000 x 3 = $105,000
Physical - $8,000
Lost Lifetime Pay - $30,000

Total Costs $143,000


Become a corporate drone.

jbwm89
01-30-2011, 10:58 PM
Cool problem. I'll restate the conditions first.

#1 Peace core stint would last for 3 years
#2 In those 3 years, your food and lodging is paid for, and you would get $10,000 per year.
#3 Alternatively, you can forget the peace core and start working right away. $50,000 per year, minus $15,000 expenses for paying for your own room and board, net $35,000 per year
#4 If you join the peace core, you will receive emotional enjoyment worth the equivalent to you of $15,000 per year in those 3 years.
#5 If you join the peace core, you incur a one-time cost in the first year of $8,000
#6 This condition is worded vaguely. (eg "lifetime pay at 1,000 per year" could mean the present value of your life earnings is reduced by 3,000, or that your starting salary after the peace corp will be 49,000, or that it will be 47,000, or some other interpretation) I decided to assume that after you get back from the peace corp, you will be working for 49,000 per year.
#7 You will retire 30 years after you are done with the peace corp, or 33 years from today. So you'll either be working at your job for 30 years or 33 years.
#8 If you work for the peace core, you will gain $50,000 of present value.

Join peace core
Year 1: 10k - 8k + 15k + 50k = 67k
Years 2 and 3: 10k + 15k = 25k
Years 4 through 33: 49k - 15k = 34k
Total: 1.112MM

Don't join peace core
Years 1 through 33: 50k - 15k = 35k
Total: 1.115MM

It's very close, but I'm also coming up with no. Since we are including non-monetary "emotional" gains, I don't know that it would be appropriate to evaluate what happens when you introduce an interest rate. (otherwise with the numbers this close and that lump sum for joining the peace core, there could be some interest rate that makes them equal)

Even though you might think the answer "should be" join the peace core, I wouldn't be surprised if it was no. This seems like a clever way to fool the student into thinking one answer just has to be right and twisting the numbers around to fit that conclusion instead of just doing the math.

edit: going back to condition 5, if we assume that it meant reduce the lifetime earnings by 3k, then you should join the peace corp.

I took it as reduce the lifetime earnings by 1k per year for the 30 years you work afterwards.

-King-
01-30-2011, 10:59 PM
Cool problem. I'll restate the conditions first.

#1 Peace core stint would last for 3 years
#2 In those 3 years, your food and lodging is paid for, and you would get $10,000 per year.
#3 Alternatively, you can forget the peace core and start working right away. $50,000 per year, minus $15,000 expenses for paying for your own room and board, net $35,000 per year
#4 If you join the peace core, you will receive emotional enjoyment worth the equivalent to you of $15,000 per year in those 3 years.
#5 If you join the peace core, you incur a one-time cost in the first year of $8,000
#6 This condition is worded vaguely. (eg "lifetime pay at 1,000 per year" could mean the present value of your life earnings is reduced by 3,000, or that your that your starting salary after the peace corp will be 49,000, or that it will be 47,000, or some other interpretation) I decided to assume that after you get back from the peace corp, you will be working for 49,000 per year.
#7 You will retire 30 years after you are done with the peace corp, or 33 years from today. So you'll either be working at your job for 30 years or 33 years.
#8 If you work for the peace core, you will gain $50,000 of present value.

Join peace core
Year 1: 10k - 8k + 15k + 50k = 67k
Years 2 and 3: 10k + 15k = 25k
Years 4 through 33: 49k - 15k = 34k
Total: 1.112MM

Don't join peace core
Years 1 through 33: 50k - 15k = 35k
Total: 1.115MM

It's very close, but I'm also coming up with no. Since we are including non-monetary "emotional" gains, I don't know that it would be appropriate to evaluate what happens when you introduce an interest rate. (otherwise with the numbers this close and that lump sum for joining the peace core, there could be some interest rate that makes them equal)

Even though you might think the answer "should be" join the peace core, I wouldn't be surprised if it was no. This seems like a clever way to fool the student into thinking one answer just has to be right and twisting the numbers around to fit that conclusion instead of just doing the math.

edit: going back to condition 5, if we assume that it meant reduce the lifetime earnings by 3k, then you should join the peace corp.

The reason I'm thinking the answer should be yes is because question 2 says: "Now suppose you have finished your peace corps service and you find the following things occurred that you had not expected. Suppose you were correct about all your other expectations"

So I'm thinking that the benefit must have been more than the cost for him to join. Maybe I'm overthinking this.

jbwm89
01-30-2011, 11:01 PM
The reason I'm thinking the answer should be yes is because question 2 says: "Now suppose you have finished your peace corps service and you find the following things occurred that you had not expected. Suppose you were correct about all your other expectations"

So I'm thinking that the benefit must have been more than the cost for him to join. Maybe I'm overthinking this.

possibly, micro down here is pretty confusing and inconsistent as far as which approach is necessary.

alnorth
01-30-2011, 11:07 PM
you guys reply fast. I made several corrections to fix some minor errors.

It all boils down to condition 6. If it means you'll be working for 49,000 per year for 30 years, then don't join the peace corps. If it means you merely lose a grand total of $3,000 over your entire working life, then join the peace corps.

-King-
01-30-2011, 11:12 PM
Yeah, the wording on this problem really messes it up.

alnorth
01-30-2011, 11:14 PM
condition 6 is screwing this up. I'm now beginning to think it just meant take off 3000 total instead of 1 grand per year (or 30k total). The reason is the word "lifetime". If the question writer wanted to say your salary is reduced to 49,000, then if that word is removed, the intent is much clearer. "lifetime" does not need to be there if that was the intent.

If the question meant to say you'll lose 3,000 over the course of your life, then the value of joining the peace corps is $1.164MM

edit: yep, after reading it again I change my mind, I'm going with the alternate interpretation, and I'd make it very clear what I was doing and why. So yes, join the peace corps.

-King-
01-30-2011, 11:22 PM
condition 6 is screwing this up. I'm now beginning to think it just meant take off 3000 total instead of 1 grand per year (or 30k total). The reason is the word "lifetime". If the question writer wanted to say your salary is reduced to 49,000, then if that word is removed, the intent is much clearer. "lifetime" does not need to be there if that was the intent.

If the question meant to say you'll lose 3,000 over the course of your life, then the value of joining the peace corps is $1.164MM

edit: yep, after reading it again I change my mind, I'm going with the alternate interpretation, and I'd make it very clear what I was doing and why. So yes, join the peace corps.

I think I'm going to go with that since thats the only way question 2 would make sense.

It wouldn't make sense to go to the peace corp in question 2 if the benefit was lower than the cost.

-King-
01-30-2011, 11:34 PM
Wait, am I supposed to calculate it for his working career?

Benefits

30,000 peace corp
49,000 per year for 30 years
50,000 french
15,000 per year for 3 years for satisfaction in the peace corps

Total= $1,545,000

Costs
50,000 a year for 30 years
8,000 for the transportation and physical
15000 room and board

Total = $1,523,000

I have never overthunk a problem like this LMAO

alnorth
01-30-2011, 11:55 PM
Wait, am I supposed to calculate it for his working career?

Benefits

30,000 peace corp
49,000 per year for 30 years
50,000 french
15,000 per year for 3 years for satisfaction in the peace corps

Total= $1,545,000

Costs
50,000 a year for 30 years
8,000 for the transportation and physical
15000 room and board

Total = $1,523,000

I have never overthunk a problem like this LMAO

I assumed that if you dont join the peace corps, then you work for 33 years. The problem said his retirement age was 30 years after peace corps.

Given that and what we said above, I'm getting

peace corps = $1,164,000
no peace corps = $1,155,000

edit: I'm sure there's a clean way to divide it between cost/benefit, but thats unintuitive, unnecessary, and more likely to make mistakes.

You have two different people, one who joined, and one who did not join. How much will each make? Higher value wins. Simple.

-King-
01-31-2011, 12:01 AM
Emailed a TA. She said that the cost SHOULD outweigh the benefit.

alnorth
01-31-2011, 12:09 AM
Emailed a TA. She said that the cost SHOULD outweigh the benefit.

in that case, my original interpretation of condition 6 might be right, the values in that post might be right, and the way the question was worded sucks. The word "lifetime" should have been excluded.

-King-
01-31-2011, 12:17 AM
So all in all do I calculate it for her whole career, or calculate it for 3 years?

alnorth
01-31-2011, 12:24 AM
So all in all do I calculate it for her whole career, or calculate it for 3 years?

The best way is to evaluate both choices. There is not an easy intuitive way to say cost = x and benefit = y, I'd do peace corps person earned x in his life, and corporate person earned y in his life.

-King-
01-31-2011, 12:29 AM
The best way is to evaluate both choices. There is not an easy intuitive way to say cost = x and benefit = y, I'd do peace corps person earned x in his life, and corporate person earned y in his life.

Yeah, I think thats the best route, but it doesn't say when the corporate person retires. For the peace corps person, it's 30 years.

jbwm89
01-31-2011, 12:33 AM
So all in all do I calculate it for her whole career, or calculate it for 3 years?

Imo you should calculate the lifetime. Pm me if you ever need any advice on classes, teachers etc. I'm graduating in may so I've pretty much had moat of the classes your looking at.

Rain Man
01-31-2011, 11:57 AM
So all in all do I calculate it for her whole career, or calculate it for 3 years?

Frankly, I think the best way is not to add up the whole career because it's a pain in the neck. You're just looking at differentials, so you should assume that the corporate drone job is zero and freeze it at that, then calculate the relative costs and benefits of the Peace Corps gig and see if it adds to more than zero or less than zero. That's the way they worded the problem.

Saul Good
01-31-2011, 12:18 PM
So all in all do I calculate it for her whole career, or calculate it for 3 years?

30 years worth. I don't see anything confusing about that. You will always be 3 years more experienced.

Saul Good
01-31-2011, 12:25 PM
Frankly, I think the best way is not to add up the whole career because it's a pain in the neck. You're just looking at differentials, so you should assume that the corporate drone job is zero and freeze it at that, then calculate the relative costs and benefits of the Peace Corps gig and see if it adds to more than zero or less than zero. That's the way they worded the problem.

This

(50k-15k-15k-10k)*3= 30k salary less expenses less annual enjoyment.
30k+8k-50k= -12k representing 30k from above plus physical less french.
-12k + (1k*30) = 18k net benefit from going corporate (not factoring in the fact that the extra thousand earned per year should be discounted to determine a present value).

Rain Man
01-31-2011, 12:30 PM
This

(50k-15k-15k-10k)*3= 30k salary less expenses less annual enjoyment.
30k+8k-50k= -12k representing 30k from above plus physical less french.
-12k + (1k*30) = 18k net benefit from going corporate (not factoring in the fact that the extra thousand earned per year should be discounted to determine a present value).

Yep, that's what I came up with as well.

I didn't do the net present value thing, but you're right that it's the proper way to do it. Not sure if that's part of the class or not.

alnorth
01-31-2011, 12:44 PM
Yeah, I think thats the best route, but it doesn't say when the corporate person retires. For the peace corps person, it's 30 years.

The non-peace corps person works for 33 years. The problem tells you the year they retired, whether they join or not.

If the non-peace corps person worked for only 30 years, then the cost becomes small and the peace corps probably wins by a mile. (in that situation, the 1000 per year you are giving up would be immediately made up by your 3-year peace corps salary alone. The enjoyment and french would put you way over the top. The reason why corporate wins is because of the 3 years of net corporate salary you lose)

alnorth
01-31-2011, 12:53 PM
Frankly, I think the best way is not to add up the whole career because it's a pain in the neck. You're just looking at differentials, so you should assume that the corporate drone job is zero and freeze it at that, then calculate the relative costs and benefits of the Peace Corps gig and see if it adds to more than zero or less than zero. That's the way they worded the problem.

I disagree, since there is not an interest rate or any discounting that has to be done, the math is trivial. Also, it is more intuitive and easy to understand to say "if you do this, you'll get this much money, and if you do that, you'll get that much money". Its how we usually evaluate economic decisions. Classifying benefits vs costs works too, but its a bit more needlessly esoteric.

Saul Good
01-31-2011, 01:10 PM
I disagree, since there is not an interest rate or any discounting that has to be done, the math is trivial. Also, it is more intuitive and easy to understand to say "if you do this, you'll get this much money, and if you do that, you'll get that much money". Its how we usually evaluate economic decisions. Classifying benefits vs costs works too, but its a bit more needlessly esoteric.

I don't understand your reasoning here. I did the math in my head in about 30 seconds using a comparison. This way is akin to counting cards using a running count. Your way is like tracking every card.

I did the math this way.

-40k @ 3 yrs = -120k
+15k @ 3 yrs = -75k
+15k @ 3 yrs = -30k
-8k = -38k
-1k @ 30 yrs = -68k
+50k = -18k