What is endowment point and budget line

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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 110 (non-sleeping) hours in the week.

(a) What is Tom’s endowment point? In other words, if Tom chooses not to work at all, what is his consumption level and hours of leisure?

(b) For all hours Tom works up to his first 40, what is his after-tax, after-child care wage? If he works 40 hours, what is his consumption level and hours of leisure?

(c) For all hours Tom works over 40, what is his after-tax and after-child care wage? If he works for 110 hours and has no leisure at all, what is his consumption level?

(d) Graph Tom’s weekly budget line.

Reference no: EM131000490

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