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Tutorial 1 Solutions - 2-3 Tom earns $15 per hour for up to...

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2-3. Tom earns $15 per hour for up to 40 hours of work each week. He is paid $30 per hour for every hour in excess of 40. Tom faces a 20 percent tax rate and pays $4 per hour in child care expenses for each hour he works. Tom receives $80 in child support payments each week. There are 168 hours in the week. Graph Tom’s weekly budget line. If Tom does not work, he leisures for 168 hours and consumes $80. For all hours Tom works up to his first 40, his after-tax and after-child care wage equals (80 percent of $15) – $4 = $8 per hour. Thus, if he works for 40 hours, he will be able to leisure for 128 hours and consume $80 + $8(40) = $400. For all hours Tom works over 40, his after-tax and after-child care wage equals (80 percent of $30) – $4 = $20. Thus, if he works for 168 hours (128 hours at the overtime wage), he will not leisure at all, but he will consume $80 + $8(40) + $20(128) = $2,960. Tom’s weekly budget line is pictured below. 2-4. Cindy gains utility from consumption C and leisure L . The most leisure she can consume in any given week is 168 hours. Her utility function is
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