Question

During the past major recession, upscale hotels in the United States recently cut their prices by 25 percent in an effort to bolster dwindling occupancy rates among business travelers. A survey performed by a major research organization indicated that businesses were becoming wary of bad economic conditions and began resorting to electronic media, such as the Internet and the telephone, to transact business. Assume a company’s budget permits it to spend $6,000 per month on either business travel or electronic media to transact business. In the graph below, illustrate this company's budget set if the price of business travel is $1,200 per trip and the price of electronic media is $600 per hour. In the same graph, illustrate this company's budget set after the price of business travel is reduced by 25 percent. Instruction: Graph both budget sets from where the Quantity of Electronic Media = 0 to where the budget set crosses the X-axis

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Answer 1