How would you respond in Problem 2 if the marginal cost of production were increasing? Why? Data
Question:
How would you respond in Problem 2 if the marginal cost of production were increasing? Why?
Data from problem 2:
Suppose that you have one domestic production facility that supplies both the domestic and foreign markets. Assume that the demand for your product in the domestic market is Q = 2,000 - 3P, and in the foreign market, demand is given by Q* = 2,000 - 2P*. Assume that your domestic marginal cost of production is 600. If the initial real exchange rate is 1, what are your optimal prices and quantities sold in the two markets? By how much will you change the relative prices of your product if the foreign currency appreciates in real terms by 10%? What will you do to production?
Exchange RateThe value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...
Step by Step Answer:
If the marginal cost of production is increasing it costs more to produce larger quantities Af...View the full answer
International Financial Management
ISBN: 978-0132162760
2nd edition
Authors: Geert Bekaert, Robert J. Hodrick
