Question

Suppose apartments are in four locations: Location A, Location B, Location C, and Location D. Location A is in the city, where your job is. Location B is 10 minutes farther from your job than Location A. Location C is 10 minutes farther from your job than Location B, and Location D is 10 minutes farther than Location C. In turn, similar apartments in Location B rent for $115 less per month than apartments in Location A. Apartments in Location C rent for $115 less than in Location B, and apartments in Location D rent for $115 less than in Location C. Suppose the value of your time is $18 per hour and you work 21 days per month, with each day requiring a round-trip commute from your apartment to work. For simplicity, assume rent and the opportunity cost of your time commuting to work are the only factors influencing the location in which to rent an apartment. You should rent an apartment in: - Location D - Location B - Location C - Location A

          Suppose apartments are in four locations: Location A, Location B, Location C, and Location D. Location A is in the city, where your job is. Location B is 10 minutes farther from your job than Location A. Location C is 10 minutes farther from your job than Location B, and Location D is 10 minutes farther than Location C. In turn, similar apartments in Location B rent for $115 less per month than apartments in Location A. Apartments in Location C rent for $115 less than in Location B, and apartments in Location D rent for $115 less than in Location C. Suppose the value of your time is $18 per hour and you work 21 days per month, with each day requiring a round-trip commute from your apartment to work.

For simplicity, assume rent and the opportunity cost of your time commuting to work are the only factors influencing the location in which to rent an apartment.

You should rent an apartment in:

- Location D
- Location B
- Location C
- Location A

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Added by Austin O.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Akash M

08/28/2023

Step 1

Calculate the additional commute time for each location compared to Location A: - Location A: 0 minutes - Location B: 10 minutes - Location C: 20 minutes - Location D: 30 minutes Show more…

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Suppose apartments are in four locations: Location A, Location B, Location C, and Location D. Location A is in the city, where your job is. Location B is 10 minutes farther from your job than Location A. Location C is 10 minutes farther from your job than Location B, and Location D is 10 minutes farther than Location C. In turn, similar apartments in Location B rent for $115 less per month than apartments in Location A. Apartments in Location C rent for $115 less than in Location B, and apartments in Location D rent for $115 less than in Location C. Suppose the value of your time is $18 per hour and you work 21 days per month, with each day requiring a round-trip commute from your apartment to work. For simplicity, assume rent and the opportunity cost of your time commuting to work are the only factors influencing the location in which to rent an apartment. You should rent an apartment in: - Location D - Location B - Location C - Location A

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Transcript

00:01 We are given some information regarding four locations and we have to determine which among the four locations will be the best location to rent an apartment based upon the information available to us.

00:18 So in order to calculate that we will firstly look into the monthly cost to each locations that includes the rent at each location as well as the opportunity cost.

00:38 Well we know the opportunity cost as the next best alternative foregone.

00:45 So let's start the question.

00:47 We have the given information as first the rent difference between adjacent location is given to be as $115 and the value for your time is given to be around $18 per hour.

01:20 Now we have workdays per month equal 21 workdays and the commuting time which is the round trip per day is including is equal to 20 minutes that means 10 minutes each way.

02:02 Now let's calculate the total monthly cost for each locations separately for location one or location a the rent is given to be as let's take rent as hour and the commute time will be equal to 21 days times 20 minutes which is both ways upon 60 because it is per hour which is equal to 7 hours.

02:43 Now opportunity cost of commuting will be 7 hours times $18 per hour which is around $126.

03:04 Therefore the total cost that is equal to rent plus the opportunity cost will be 7 plus 126 equals 133.

03:28 Now for the location b the location b rent is given to us as an equation like hour minus $115 which is obviously cheaper than location a.

03:52 Now the commuting time equals 21 days as usual like the earlier location times the two trips which is equals to 7 hour two trips times 20 per 60 equals 7 hour.

04:29 Now the opportunity cost will be for commuting is 7 hours times $18 which is equal to again $216.

04:42 So the total cost will be same to that of location a 17 plus 216.

04:55 No it is not to equals to that is around 7 plus 216...

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