Trish must be at work exactly 40 hours/week where she earns $13/hour. While at work she...

Trish must be at work exactly 40 hours/week where she earns $13/hour.

While at work she can engage in either Hard Work Hours or Easy Work Hours (where Hard Work Hours = 40 – Easy Work Hours).

Trish earns a $24/hour commission for each hour of hard work she engages in, and also receives a $191 bonus if she engages in at least 30 hours of hard work in a given week.

What is the vertical value of the vertical intercept for Trish’s choice set over (Easy Work, $) bundles?

Solutions

Expert Solution

For H be hard work and E be easy work, we have . Trish earns $13/hour as wage for either work, and earns $24/hour as comission in addition to the wage for each hour of hard work. Moreover, Trish earns $191 bonus if H>=30 or equivalently E<10.

We have the consumption (maybe income in this case) as or or or , for ; and as or or or , for .

Hence, the budget constraint would be as , since E can be at most 40 hours.

The vertical intercept in this case would be where E=0, ie for the case E<10, we have .

The graph would be as below.

The constraint is the collective kinked line segment ABCD. The vertical intercept is marked as point A.

NOTE : This is similar to consumption leisure model, and instead of leusure we have easy work.

Rahul Sunny answered 1 year ago

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