Maria has to choose between driving and taking a train to destination A. Traveling by train will cost her $400 and will take 4 hours. Driving to destination A takes 6 hours, and the required amount of gasoline costs $250. Her opportunity cost of time is $15 per hour.
-Refer to the scenario above.Maria should choose to ________.
A) drive, as it will save her $120
B) travel by train, because it is quicker
C) drive, as it will give her a real saving of $150
D) travel by train, as it will save her $30 in travel time

Question

Quizplus · Accepted Answer

The total cost of traveling by train is $400 and 4 hours of travel time. On the other hand, driving to destination A costs $250 for gasoline and 6 hours of travel time. Maria's opportunity cost of time is $15 per hour, which means she loses $90 ($15 x 6) by driving. Therefore, the total cost of driving is $340 ($250 for gasoline + $90 opportunity cost). In comparison, traveling by train costs $400, which is $60 more expensive than driving. Hence, Maria should choose to drive as it will save her $60 in travel cost ($400 - $250) and provide her with a real saving of $150 ($90 opportunity cost + $60 travel cost).

Maria Has to Choose Between Driving and Taking a Train