Question

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? $440 $680 $520 $80

Answer 1

Answer:

Option (B) is correct.

Explanation:

For a 20 workday month,

cost of gas and productivity = $4 per day

cost of commuting = cost of gas and productivity × 20 workday month

                               = $4 × 20

                               = $80.

The total rent he is paying currently is $600 per month that does not include the commuting cost.

Hence, the individual must willing to pay a total of:

= Total rent + Cost of commuting

= $600 + $80

= $680 for an apartment downtown.

Thus, the total amount to be paid willingly is $680.