DrJ Has 80 Hours Per Week to Divide Between Work

question 29

Multiple Choice

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 $150 per week.Suppose that the first $100 per week of his labor income is untaxed, but all labor income above $100 is taxed at a rate of 70%.

• A)Dr.J's budget line has no kinks in the part of it that corresponds to a positive labor supply.
• 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 70 units of leisure.
• D)Dr.J's budget line has a kink where his income is $250 and his leisure is 60 hours.
• E)Dr.J's budget line has a piece that is a horizontal straight line.

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Definitions:

Debt-Equity Ratio

The quotient of total liabilities and shareholders' equity, representing a company's leverage financially.

Dividend Growth Model

A method for valuing a stock by assuming constant dividend growth and using future dividends to forecast stock price.

SML Approach

A method used in finance to determine the expected return of an investment with respect to its risk, as represented by its beta.