An individual works downtown and pays $600 per month in rent for an apartment located 10 miles from her office. She has calculated that she spends 30 minutes per day driving each way to the office and it costs her $4 per day in gas and lost productivity. Using the framework of the bid-rent model, how much would she be willing to pay for an apartment downtown, assuming a 20 workday month?
A) $80
B) $440
C) $520
D) $680

Question

Quizplus · Accepted Answer

The individual currently spends $4 per day on gas and lost productivity, which over a 20 workday month amounts to $80 ($4/day * 20 days = $80). Therefore, she could afford to pay her current rent of $600 plus the $80 she would save by not commuting, totaling $680 ($600 + $80 = $680) for an apartment downtown.

An Individual Works Downtown and Pays $600 Per Month in Rent