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 $5,000 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 company’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

The graphical representation is provided in the attached. It demonstrates how a 20% decrease in the cost of business travel would affect this company's budget if the cost of business travel was initially $1,000 per trip and the cost of electronic media was $500 per hour. This is an exercise related to Resource allocation.

What is resource allocation?

The practice of assigning and managing assets in a way that meets an organization's strategic planning goals is known as resource allocation.

From the information given, is the company allocating resources efficiently?

It would be incorrect to state that the company is allocating resources efficiently.

What is the explanation for the above?

When the cost of business travel is reduced by 20%, the new price of business travel is as follows:

1000 * 20%

= $200

New price =

1,000 - 200

= $800

Recall that the budget limit is $5,000:

Number of travel units assuming the budget is fully allotted for travel

= 5000/800

= 6.25 journeys

Number of travel units assuming the funding is entirely devoted to media

= 5000/500

= 10 media

We can establish a budget line B2 with media on the y-axis and travel on the x-axis based on the information provided.

When the price is reduced, the budget line changes to the right, reading the budget line's slope and steepness.

It should be remembered that the Marginal Rate of Substitution (MRS) is the budget line's gradient. This line is formed from a change in the y-axis and a change in the x-axis.

Thus:

Budget line = - dy/dx

= - 10/6.25

Budget Linen = -1.6

This indicates that for every unit of business trip, we must sacrifice 1.6 units of media.

Remember that the MRS is -1, which implies that for every unit of business trip, the corporation gives away one unit of media.

In other words, they are paying the same price as for business travel, resulting in an inefficient use of resources.

Learn more about resource allocation at;

https://brainly.com/question/27908956

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