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
A) $40.
B) $120.
C) $160.
D) $280.

Question

Quizplus · Accepted Answer

Ms. Liebowitz should choose to fly if the benefit (7 hours of work in D.C. at $40 per hour = $280) exceeds the cost of flying minus the cost of driving. Since she can only work 4 hours if she drives, the benefit of driving is only $160.

Therefore, Ms. Liebowitz will choose to fly if the airfare is less than $280 - $160 = $120 more than the cost of driving.

Thus, the answer is choice B, $120.

Ms Liebowitz Has a Choice of Driving or Flying from Morgantown