Upscale hotels in the United States recently cut their prices by 25% 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 $6,000 per month on either business travel or electronic media to transact business. Graphically illustrate how a 25% decline in the price of business travel was initially $1,200 per trip and the price of electronic media was $600 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.

Solution Preview

Define the following variables:

= price of business travel
= price of electronic media per hour.
= total budget per month.

Write an inequality relating the price of business travel and the price of electronic media ...

Solution Summary

A step-by-step solution with equations and two graphs is provided in a .png.

The rate at which one input X may be substituted for another input Y in a
production process, while total output remains constant, is:
a) the slope of the isoquant curve
b) the marginalrate of technical substitution (MRTS)
c) equal to MPx/MPy
d) all of the above
e) none of the above

I am a graduate student surviving on a limited income and my money income is $300 per month, the price of good X is $4, and the price of good Y is also $4. Given these prices and income, I buy 50 units of X and 25 units of Y. The combination of X and Y bundle J. At bundle J my marginalrate of substitution (MRS) is 2. At bund

In the following diagram, we show one of John's indifference curves and her budget line.
*Diagram Attached
A. If the price of good X is $100, what is her income?
B. what is the equation for her buedget line?
C. What is the slope of the budget line?
D. What is the price of good Y?
E. What is her marginalrate of substit

1. What entity establishes a price ceiling and does it require government sanction for violators? Will it result in a surplus or a shortage?
2.Does the marginalrate of substitution increase or decrease as a point moves downward and to the right along a given indifference curve?

Given a diagram (see attachment) of an indifference curve and a budget line:
a) Calculate the consumer's income.
b) Calculate the equation of her budget line.
c) Calculate the slope of her budget line.
d) Calculate the price of Good X.
e) Calculate the consumer's marginalrate of substitution in equilibrium.

Question 1. Page 154 (with some modifications)
A consumer has $300 to spend on goods X and Y. The market prices of these two goods are Px = $15 and Py = $5.
a. Draw the budget constraint. I.e. provide a carefully labeled diagram
b. What is the market rate of substitution? Give an interpretation.
c. Illustrate the consum

1.
Demand curve: P = 1,000 â?" 25Q, where P is price and Q is quantity sold per month.
dQ/dP = -1/100
n= (dQ/DP) * (P/Q)
1) Calculate the price elasticity of demand if price equals $250. 2)Calculate the price that maximizes total revenue.
2
Assume that you have $150 that you can spend on either concert tickets o

Jon's income is $150. Good X is $2 and good Y is $2. Jon buys 50 units of X and 25 units of Y. Call this bundle K. At this bundle the marginalrate of substitution is 2. Can Jon improve himself by increasing his consumption of Y? What should he do?
Please explain answers.