9. A new faculty member at the local university pays $1500 per month to rent an

Question

9. A new faculty member at the local university pays $1500 per month to rent an apartment in the downtown area. She teaches on campus 3 days a week and works from home the remaining 2 days. On the days in which she must commute, given the heavy traffic congestion, it takes her 2 hours to commute from downtown to campus. According to the assumptions of the bid-rent model, what should this professor be willing to pay in rent per month to live near campus if her hourly wage rate is $25? (In your calculations, assume there are 4 weeks in a given month)

Explanation / Answer

With 4 weeks in a month, there are 3*4 = 12 days for teaching and 2*4 = 8 days for work from home in a month. When commuting a total of 4 hours a day are needed. This cost him $25*4 = $100 per day in lost earnings and a total of $100*12 = $1200 as lost earnings for a month. Currently he pays $1500 per month to rent an apartment. Thus the total amount he is willing to pay in rent per month to live near campus is the sum of $1500 and $1200 = $2700

Required amount is $2700.

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