Jon earns $20 per hour in his current job and works 35 hours a week. His disutility of effort is equivalent to a cost of $4 per hour of work. If he loses his job, he will receive unemployment benefit equivalent to $8 per hour, and it would take him 26 weeks to find another job. What is Jon's total employment rent? $7280 $10920 $18200 $3640
To calculate Jon's total employment rent, we need to find the difference between the benefits he receives from working and the benefits he would receive from not working.
The benefits from working are:
Wage per hour * Hours worked per week = $20 * 35 = $700 per week
The disutility of effort is equivalent to a cost of $4 per hour of work, so the cost of working each week is:
Cost of work per hour * Hours worked per week = $4 * 35 = $140 per week
Therefore, the net benefits from working are:
Benefits from working per week = Benefits from working - Cost of work = $700 - $140 = $560 per week
If Jon loses his job, he will receive unemployment benefit equivalent to $8 per hour, so the benefits from not working are:
Unemployment benefit per hour * Hours per week = $8 * 35 = $280 per week
It would take him 26 weeks to find another job, so the total benefits from not working are:
Total benefits from not working = Benefits from not working per week * Weeks = $280 * 26 = $7280
Finally, we can calculate Jon's total employment rent by subtracting the benefits from not working from the benefits from working:
Total employment rent = Benefits from working - Total benefits from not working = $560 - $7280 = -$6720
Since the total employment rent is negative, it means that Jon would be better off not working. Therefore, he should choose to be unemployed, and the total employment rent would be -$6720.
So, the correct answer is not provided in the options given.
To calculate Jon's total employment rent, we need to determine the difference between his current job and the next best alternative.
Step 1: Calculate the earnings from Jon's current job per week:
Earnings per hour = $20
Hours per week = 35
Earnings per week = Earnings per hour * Hours per week = $20 * 35 = $700
Step 2: Calculate the disutility cost per week:
Disutility cost per hour = -$4
Hours per week = 35
Disutility cost per week = Disutility cost per hour * Hours per week = -$4 * 35 = -$140
Step 3: Calculate the unemployment benefit per week:
Unemployment benefit per hour = $8
Hours per week = 35
Unemployment benefit per week = Unemployment benefit per hour * Hours per week = $8 * 35 = $280
Step 4: Calculate the total employment rent per week:
Total employment rent per week = Earnings per week + Disutility cost per week + Unemployment benefit per week
= $700 + (-$140) + $280 = $840
Step 5: Calculate the total employment rent for 26 weeks (the time it takes Jon to find another job):
Total employment rent = Total employment rent per week * Weeks = $840 * 26 = $21,840
Therefore, Jon's total employment rent is $21,840.