On a particular Saturday,Tom had planned to paint a room in his house,but his employer gave him the opportunity to work that day.If Tom works,he must hire a painter for $100.For Tom to have a positive cash flow from working and hiring the painter:
A)Tom must earn at least $125 if Tom is in the 25% marginal tax bracket.
B)Tom must earn at least $150 if Tom is in the 33% marginal tax bracket.
C)Tom must earn at least $150 if he is in the 25% marginal tax bracket.
D)Tom must earn at least $115 if he is in the 15% marginal tax bracket.
E)None of the above.

Question

Quizplus · Accepted Answer

If Tom works, he will earn some income, but he will also have to pay $100 to hire a painter. Therefore, Tom's net income from working will be his income minus $100. In order for him to have a positive cash flow, his net income must be greater than $0.
Let X be the amount Tom earns if he works. Then:
For someone in the 25% marginal tax bracket: 
Net income = X - $100 - 0.25X
Therefore, X - $100 - 0.25X > 0 
0.75X > $100 
X > $133.33
For someone in the 33% marginal tax bracket:
Net income = X - $100 - 0.33X
Therefore, X - $100 - 0.33X > 0 
0.67X > $100
X > $149.25
Since Tom must earn at least this amount to have a positive cash flow from working and hiring the painter, the correct answer is B) Tom must earn at least $150 if Tom is in the 33% marginal tax bracket.

On a Particular Saturday,Tom Had Planned to Paint a Room