Question

A consumer has two basic choices in making a trip: rent a car for $30.00 a day and spend two days of travel to the destination, or spend $400 for an airplane ticket and fly to the destination in two hours. The marginal utilities of the car rental and the airline ticket are the same. The consumer values time at $5 an hour. The rational consumer will most likely:a. Rent a carb. Buy an airline ticketc. Find the full cost of the two modes to be equald. Not make the trip

Answer 1

Th answer is: A) Rent a car.

Step-by-step explanation:

If the consumer rents the car he will spend $60 ($30 per day x 2 days) in rent and $240 (= $5 per hour x 48 hours) in used time. His total cost will be $300.

If the consumer buys a plane ticket he will spend $400 and $10 ($5 per hour x 2 hours) in used time. His total costs will be $410.

Since both marginal utilities are the same, we have to choose the alternative with the lowest possible cost; rent a car.