14. Upscale hotels in the United States recently cut their prices by 20 percent in an...
14. Upscale hotels in the United States recently cut their prices by 20 percent in an effort to bolster dwindling occupancy rates among business travelers. A survey performed by a major research organization indicated that businesses are wary of current economic conditions and are now resorting to electronic media, such as the Internet and the telephone, to transact business. Assume a company's budget permits it to spend S5,000 per month on either business travel or electronic media to transact business. Graphically illustrate how a 20 percent decline in the price of business travel would impact this com- pany's budget set if the price of business travel was initially $1,000 per trip and the price of electronic media was $500 per hour. Suppose that, after the price of business travel drops, the company issues a report indicating that its marginal rate of substitution between electronic media and business travel is-1. Is the company allocating resources efficiently? Explain