Suppose the welfare benefit formula is

Welfare Benefit amount = $8,000 – 0.67 (Wages earned – $2,000)

1. What is the marginal tax rate on:

1a. The first $2,000 of wages? (in other words, how much is the tax on first $2000?)

1b. Wages above $2,000?

2. How large is the Welfare benefit amount if wages equal to:

2a. $0?

2b. $2,000?

2c. $6,000?

3. What is the breakeven level of income in this case? (In other words, what is the wages earned amount which will equal the $8,000 benefit amount according to the equation given?)

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