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 Brent for $185 less per month than apartments in Location Ar apartments in Location C rent for $185 less than in Location B, and apartments in Location D rent for $185 less than in Location C. Suppose the value of your time is $22 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 .

Answer 1

Assume:

A=0

B=1

C=2

D=3

Formula:

185X - (10X * 2)/60 * 21 * 22 = ?

Cost Savings:

Apartment A = $0.00

Apartment B = $23.00

Apartment C = $46.00

Apartment D = $69.00

According to the time value, Apartment D provides the most savings.

Renting, which is three times less than Apartment A, compensates for 30 minutes each way (or 1 hour per day at $22/hr for 21 days). The rate of net income $405 is $336.