A monopolist sells goods in a domestic market and exports to a foreign market. The (inverse) demand curves are identical in the two markets and are structured as follows: P=K - Qa (1) P* =K Q" (2) where variables superscripted with a * refer to the foreign market. All units are produced domestically and have a marginal cost of C'. The exchange rate S is defined in units of local currency per foreign currency. (a) Derive an analytical expression for the optimal price and quantity in each market and for total maximising profits. (b) Use your previous results to show how a depreciation of the local currency affects pricing in the foreign market and quantity sold. (c) Illustrate your results from (a) and (b) by considering a situation where K = 5,500, C =550, 8 = 0.5 and where S increases from 1 to 1.1. (d) What are the implications of your analysis in (c) for exchange rate pass through and the law of one price in this setting