There are two routes to Cleveland from Indianapolis. One route takes the toll ro

Question

There are two routes to Cleveland from Indianapolis. One route takes the toll road, which costs $9.00. One route takes the state highways with no tolls. The toll road has a 30% chance of taking 4 hours and a 70% chance of taking 5 hours. The state highway route has a 30% chance of taking 4 hours, a 50% chance of taking 5 hours, and a 20% chance of taking 6 hours. All other factors being the same, people who place a higher value on their time would tend to take which route? What is the minimum value per hour placed on one

Explanation / Answer

T is the expected time from taking the toll rode. S is the expected time from taking the state highway. T=0.3*4+0.7*5 T=4.7 hours S=0.3*4+0.5*5+0.2*6 S=4.9 hours On average, people who pay the toll save 0.2 hours or 12 minutes. So, people who value their time more are more likely to take the toll rode than the state highway. People who pay the toll are paying $1 for 0.2 hours. That is $5/hr. That would be the minimum value that people would need to place on their time in order to want to take the toll rode instead of the state highway.

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