Question

Maria has to choose between driving and taking a train to destination A. Traveling by train will cost​ $ 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 ​$10 per hour.

​a. What is the total cost involved if Maria chooses to travel by​ train? ​

b. If Maria borrows her​ parents' car and pays for only the​ gasoline, what is her total cost of driving to destination​ A?

​c. Maria should choose to​ ________.

​d. If Maria's opportunity cost of time increases to ​$70 per​ hour, the cost of taking the train is​ ________. ​

e. If Maria's opportunity cost of time increases to ​$70per ​hour, the cost of driving to destination A is​ ________. ​f. If the opportunity cost of time increases to ​$70 per​ hour, Maria should choose to​ ________.

Explain your answers explicitly for each question seperately.

Answer 1

Q1) Cost of taking the train = explicit cost of train + the opportunity cost (number of hours*cost of hour)

= 400 + 10*4

= $ 440

Q2) Cost of taking the tarin = explicit cost of car (gasolinie)+ the opportunity cost (number of hours*cost of hour)

= 250+ 10*6

= $ 310

Q3) Since the cost of the car is lower, she should choose to borrow the car and not the train

Q4) New cost of taking the train = 400 + 70*4 = $680

Q5) New cost of driving by car = 250 + 6*70 = $670

Q6) Since, the cost of driving the car is still lower (although the difference has reduced), she should use the car and not the train