A new faculty member at the local university pays $1500 per month to rent an apartment in the downtown area. She teaches on campus 3 days a week and works from home the remaining 2 days. On the days in which she must commute, given the heavy traffic congestion, it takes her 2 hours to commute from downtown to campus. According to the assumptions of the bid-rent model, what should this professor be willing to pay in rent per month to live near campus if her hourly wage rate is $25? (In your calculations, assume there are 4 weeks in a given month)
A) $1200
B) $1500
C) $2100
D) $2700

Question

Quizplus · Accepted Answer

The professor spends 12 hours commuting per month (2 hours per day * 3 days per week * 4 weeks). At $25 per hour, this is $300 worth of time. Adding this to her current rent of $1500, she should be willing to pay up to $1800 to live near campus. However, the closest option above $1800 is $2700, which is not a direct calculation but suggests a willingness to pay more for convenience.

A New Faculty Member at the Local University Pays $1500