Chester works 40 hours per week as a plumber for Waterloo Plumbers in Cape Town earning $120 per hour. On any given day, Chester exerts an effort level of 0.7, which translates into a disutility cost of $25 per hour. Chester knows that if he loses his job with Waterloo Plumbers today, it will take him 8 weeks to find another job. If Chester loses his job, he will be able to claim unemployment fund of $65 per hour for a maximum of 6 weeks.

(a) Calculate Chester’s average hourly unemployment benefits during his period of


(b) Using the employment rent model, draw a graph showing Chester’s situation graphically. Make sure to label all important points and quantities. [6]

(c) Calculate the value of Chester’s total employment rent. [2]
Assume that Chester’s family tell him they will give him a lump sum of $4000 if he loses his job that can supplement his unemployment benefits while he is unemployed.

(d) Will this R$000 payment increase or decrease Chester’s total employment rent? Explain your answer briefly, without any calculations or graphs.

(e) Calculate the equivalent amount of money per hour that this $4000 lump-sum payment translates to.

(f) What is Chester’s new total employment rent?