Question

Ms. Liebowitz has a choice of driving or flying from Morgantown, West Virginia to Washington, D.C. for a one-day business trip. If she travels by air, she will be able to work seven hours in D.C., while if she drives, she will only have time to work four hours once there. Her expected income from each hour of work in D.C. is $40. If Ms. Liebowitz is a rational decision maker, she will chose to fly if and only if the price differential (air cost minus driving cost) is less than?

Answer 1

Explanation:

If she travels by air, she will be able to work seven hours in D.C. work four hours once there. Her expected income from each hour of work in D.C. is $40. This means that the total amount that she earns in 7 hours would be

40 × 7 = $280

if she drives, she will only have time to work four hours once there. This means that the total amount that she earns in 4 hours would be

40 × 4 = $160

The difference in both amounts would be

280 - 160 = $120

she will chose to fly if and only if the price differential (air cost minus driving cost) is less than $120