During the past major recession, upscale hotels in the United States recently cut their prices by 25 percentin an effort to bolster dwindling occupancy rates among business travelers. A survey performed by a major research organization indicated that businesses were becomingwary of badeconomic conditions andbegan 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 theQuantity of Electronic Media = 0 to where the budget set crosses the X-axis.

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?

Yes - the marginal rate of substitution is equal (in absolute value) to the ratio of prices.Yes - the marginal rate of substitution is larger (in absolute value) than the ratio of prices.No - the marginal rate of substitution is larger (in absolute value) than the ratio of prices.No - the marginal rate of substitution is smaller (in absolute value) than the ratio of prices.