Scenario 21-2
Lawrence has recently graduated from college with a degree in journalism and economics. He has decided to pursue a career as a freelance journalist writing for business newspapers and magazines. Lawrence is typically awake for 112 hours each week (he sleeps an average of 8 hours each day). For each hour Lawrence spends writing, he can earn $75. Lawrence is such a good writer that he can get paid for as many hours of writing as he chooses to work.
-Refer to Scenario 21-2. If Lawrence's wage increases to $90 per hour of writing, which of the following points would fall on his budget constraint?
A)75 hours of leisure, $2,775 of consumption
B)80 hours of leisure, $2,400 of consumption
C)85 hours of leisure, $2,430 of consumption
D)90 hours of leisure, $1,650 of consumption

Question

Quizplus · Accepted Answer

Lawrence's total available hours in a week is 112 hours. He spends 8 hours each day sleeping, which means he sleeps for 56 hours in total in a week. Therefore, he is left with 112 - 56 = 56 hours for work or leisure.

At a wage of $75 per hour, Lawrence's total earnings (P) can be calculated as follows:
P = $75 x Number of hours worked
Since Lawrence can work as many hours as he likes, we can rewrite this equation as:
Number of hours worked = P / $75

We can now use this equation to create a budget constraint for Lawrence at his new wage of $90 per hour:
Number of hours worked = P / $90
Leisure time = Total available hours - Number of hours worked
Consumption = P

To find the points on the budget constraint, we can substitute values for P and solve for leisure time:
P = $2,430, Number of hours worked = $2,430 / $90 = 27
Leisure time = 56 - 27 = 29 hours
Consumption = $2,430

Therefore, the point (29, $2,430) falls on Lawrence's budget constraint. This corresponds to choice C.

Scenario 21-2 Lawrence Has Recently Graduated from College with a Degree in Degree