3. A. Budget line 1: Larry is paid $20 per hour. All income is tax free. Labor-Leisure Cobb-Douglas. Larry chooses to work for 40 hours per week, in this case Draw the full labor-leisure diagram with the budget line, and label Larrys point of optimization. How much money is he paid?

B. Budget line 2: Draw a new budget line to the following specifications: Larry is paid $30 per hour. The first $300 earned is tax free. The second $300 earned pays a 20 percent tax. Any additional earnings (above $600 gross) pay 40 percent tax.

C. Is Larry better off on budget line 1 or on budget line 2? Explain how you know. Also use another Cobb-Douglas indifference curve to justify your answer.