Question $5$

Rococo, Inc. of France exports leather couches to Turkey, whose currency, the lira $($TRY$),$ has been trading at TRY$29\mathrm{.}7/.$ Exports to Turkey are currently $40,000$ couches per year at the lira equivalent of $1,200$ each. A strong rumor exists that the lira will be depreciated to TRY$32\mathrm{.}0/.$ Should the depreciation take place, the lira is expected to remain unchanged for a long period of time.

Accepting this forecast as given, Rococo faces a pricing decision that must be made before any actual depreciation: Rococo may either $(1)$ maintain the same lira price and in effect sell for fewer euros, in which case Turkish volume will not change, or $(2)$ maintain the same euro price, raise the lira price in Turkey to compensate for the depreciation, and experience a $20\%$ drop in volume. Direct costs in France are $50\%$ of the French sales price. What would be the short$-$run $($one$-$year$)$ implication of each pricing strategy? Which do you recommend?