Wendy and Mac work in fast food restaurants. Wendy gets $4 an hour for the first 40 hours that she works and $6 an hour for every hour beyond 40 hours a week. Mac gets $5 an hour no matter how many hours he works. Each has 80 hours a week to allocate between work and leisure and neither has any income from sources other than labor. Each has a utility function U = cr, where c is consumption and r is leisure.
Each can choose the number of hours to work.
(a) How many hours will Mac choose to work?.
(b) Wendy’s budget “line” has a kink in it at the point where r = _____and c = _____. Use blue ink for the part of her budget line where she would be if she does not work overtime. Use red ink for the part where she would be if she worked overtime.
c) The blue line segment that you drew lies on a line with equation c + 4r = 320. The red line that you drew lies on a line with equation _____
(d) If Wendy was paid $4 an hour no matter how many hours she worked, she would work _____hours and earn a total of _____a week.
On your graph, use black ink to draw her indifference curve through this point.
(e) Will Wendy choose to work overtime? _____. What is the best choice for Wendy from the red budget line? (c, r) = (200, 33.3). How many hours a week will she work? ________
(f) Suppose that the jobs are equally agreeable in all other respects. Since Wendy and Mac have the same preferences, they will be able to agree about who has the better job. Who has the better job?