refer to the following diagram:

-Considering the two budget lines in the diagram,if the person's optimal number of hours worked is seven hours,then the wage rate must be:

Question

refer to the following diagram:
 
-Considering the two budget lines in the diagram,if the person's optimal number of hours worked is seven hours,then the wage rate must be:

Quizplus · Accepted Answer

The optimal number of hours worked is seven hours, which means that the person is working at the point where the budget line is tangent to the indifference curve. At this point, the slope of the budget line is equal to the marginal rate of substitution of leisure for goods. The slope of the budget line is equal to the wage rate divided by the price of goods. The price of goods is not given in the diagram, so we cannot determine the wage rate. However, we can say that the wage rate must be greater than $10, because the budget line is above the indifference curve at seven hours of work.

Refer to the Following Diagram