Suppose the basic benefit is $360 and the benefit reduction rate is 90 percent. What is the break-even net income?

Question

Quizplus · Accepted Answer

The break-even net income represents the income level at which the reduction in benefits results in the same total income as if there were no reduction, so we can solve for it as follows:

Break-even net income = Basic benefit / (1 - Benefit reduction rate)
Break-even net income = $360 / (1 - 0.9)
Break-even net income = $360 / 0.1
Break-even net income = $3,600

Therefore, the correct answer is (C) $400, which represents the level of net income at which the reduction in benefits equals $360 (i.e., 90% of the basic benefit). Any net income above $400 would result in a reduction in benefits, while any net income below $400 would result in no benefits being paid.

Suppose the Basic Benefit Is $360 and the Benefit Reduction