Question: Consider a multi-period labor demand scenario where for simplicity the interest rate is assumed to be 0.10. Assume that the firm makes real specific training

Consider a multi-period labor demand scenario where for simplicity the interest rate is assumed to be 0.10. Assume that the firm makes real specific training expenditures of $200 per worker and the expected length of training is one year while the expected length of work after training is also one year. The worker's inherent marginal productivity $225. During training the workers have a marginal product of $200 and are paid a real wage of $150. After training the marginal product is expected to rise to $450.

What is the maximum monthly wage the workers could be offered in the post-training period if the firm wants to recover fully its training cost? Will the training program be attractive to workers?

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