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Wanting to vacation in Los Angeles, Mike, who lives in Kansas City, can take direct flights on either of two airlines. Let the conditional indirect
Wanting to vacation in Los Angeles, Mike, who lives in Kansas City, can take direct flights on either of two airlines. Let the conditional indirect utility for airlines A and B, respectively, be: = + + + 1 + = + + + 2 + where Y is income, px is the price of all other goods, pA is the price on airline A, pB is the price on airline B, tA and tB are the travel times on airlines A and B, respectively. A and A represent unobserved taste variations. , , 1 and 2 are estimable parameters. a) Mike's conditional indirect utility for airline A does not depend upon either the price or the travel time on airline B. Similarly, his conditional indirect utility for airline B does not depend upon the price or travel time on airline A. If Mike decides to fly on airline A, does this decision imply that the price and travel time on airline B had no effect on Mike's choice of airline A? Explain
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