Using the labour-leisure choice model developed , consider the case of the following two workers.

Worker A, who would choose to work exactly 40 hours a week at the going wage rate of $10 an hour, and worker B, who would prefer to work 30 hours at the same going wage. Both workers, however, have to work 40 hours at $10 an hour for their employer because of rigid work shifts.

a. Using budget constraints and indifference curves, first illustrate the choices of workers when they are free to choose their hours of work. Then show what happens when both worker A and B are forced to work 40 hours a week. How does the slope of their indifference curves compare at the same point (40 hours of work) on the budget constraint?

b. The firm now wants to induce workers to supply an extra 10 hours of overtime work, in addition to the regular 40 hours work week. Illustrate the overtime premium that worker A and worker B require in order to accept to work these extra 10 hours. Is the premium higher for worker A or worker B?

c. Discuss how overtime premia are linked to the theory of compensating wages