Dr J Has 80 Hours Per Week to Divide Between

Dr. J has 80 hours per week to divide between work and leisure. His wage rate if $5 per hour. Dr. J receives a lump sum payment of $250 per week. Suppose that the first $150 per week of his labor income is untaxed, but all labor income above $150 is taxed at a rate of 70%.

A) Dr. J's budget line has a kink where his income is $400 and his leisure is 50 hours.
B) The slope of Dr. J's budget line is everywhere -1.50.
C) Dr. J's budget line has a kink in it at the point where he takes 60 units of leisure.
D) Dr. J's budget line has no kinks in the part of it that corresponds to a positive labor supply.
E) Dr. J's budget line has a piece that is a horizontal straight line.

Correct Answer:

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