Question

Dr. Jones, a dentist, is choosing between driving and flying from Pittsburgh to New York City. If Jones drove, she would have to close her office four hours earlier than if she flew by airplane. Her expected income (after taxes) from her practice is $50 per hour. Assuming all other factors are equal, if Jones was a rational decision maker, she would drive if the price differential (air cost minus driving) was greater than:_______.

a. $50.
b. $100.
c. $150.
d. $200.

Answer 1

d. $200

Step-by-step explanation:

Calculation to determine the price differential

Using this formula

Price differential=Hours closed earlier if she drove*Expected income (after taxes)

Let plug in the formula

Price differential=4 hours *$50 per hour

Price differential=*200

Therefore if she was a rational decision maker, she would drive if the price differential was greater than:$200