Wendy Has to Decide Between Taking a Flight and Driving

question 83

Essay

Wendy has to decide between taking a flight and driving to California.Air tickets cost $800 and will get her to California in 2 hours.If she decides to drive,she would need $300 worth of gasoline and 10 hours to reach her destination.Suppose Wendy's opportunity cost of time is $20 per hour.
a)Assuming that there are no other costs involved,use cost-benefit analysis to decide whether she should fly or drive to California.
b)If Wendy has an important business meeting to attend and this increases her opportunity cost of time to $200 per hour,will her optimum decision change? Explain.

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Definitions:

Inflation

The quickness at which the comprehensive level of goods and services' prices rises, corroding purchasing ability.

Real Income

The earning power of a person's money, considering the effects of inflation on purchasing power.

Wages

Payment to resource owners for their labor.

Externality

A consequence of an economic activity experienced by unrelated third parties; it can be either positive or negative.