6. (Continuing with the situation described in the preceding question.) Consider the following
model of immigration to the United States. Potential migrants originate in country 0, the source
country. For each individual, lifetime income if they remain in the source country (denoted by YO)
is given by the equation
$$Y0 = M0 + R0(S)$$
where S measures the skill level of each person, with positive values of S indicating above-
average skills, negative values of S indicating below-average skills, and S equal to zero for the
average person. Lifetime income if a person immigrates to the United States (denoted by Y1)
also varies with skills, as described by the equation
$$Y1 = M1 + R1(S)$$
The parameters M0, M1, R0, and R1 characterize the lifetime income distributions in the two
countries. Let C represent the total costs incurred when immigrating to the United States,
including any psychic costs associated with leaving one's home country. Assume the following:
$$M0 < M1 - C$$ and $$R0 > R1 > 0$$
Assume that individuals seek to maximize their lifetime income.
Under these circumstances, what happens when R0 increases?
Fewer people immigrate to the U.S., and the average skill level of U.S. immigrants decreases.
Fewer people immigrate to the U.S., and the average skill level of U.S. immigrants increases.
Fewer people immigrate to the U.S., and the average skill level of U.S. immigrants does not change.
More people immigrate to the U.S., and the average skill level of U.S. immigrants decreases.
More people immigrate to the U.S., and the average skill level of U.S. immigrants increases.
