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# Answer to Question #25235 in Microeconomics for lulu

Question #25235
By taking an airplane Larry can travel from Denver to Houston in one hour. The same trip takes 5 hours by bus. Airfare is \$90 and the bus fare is \$30. Larry, when he is not traveling, can work and earn \$30/hour
OC = (Direct Cost) + (Indirect Cost) = (Bus Fare) + (Time Cost)

= \$30 + (5 hours) (\$30/hour)

= \$30 + \$150 = \$180

OC = \$90 + (1 hour)(\$30) = \$120

Plane is cheaper for Larry

For Moe,

OC (bus) = \$30 + (5 hours)(\$6/hour) = \$60

OC (plane) = \$90 + (1 hour) (\$6/hour) = \$96

Therefore, bus is cheaper for Moe.

Lesson:

People with high time value (e.g. busy executives) are more likely to travel by
plane than by bus; whereas, people with low time value (seniors, students on
vacation) are more likely to travel by bus.

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