Rolls-Royce Turbine Engines. Rolls-Royce is struggling with its pricing strategy with a number of its major customers in Continental Europe, particularly Airbus. Since Rolls-Royce is a British company with most manufacturing of the Airbus engines in the United Kingdom, costs are predominantly denominated in British pounds. But in the period shown in the popup window,

LOADING...

,

20072009,

the pound steadily weakened against the euro. Rolls-Royce has traditionally denominated its sales contracts with Airbus in Airbus' home currency, the euro. After completing the table answer the following questions:a. Assuming each Rolls-Royce engine marketed to Airbus is initially priced at

22.56

million each, how has the price of that engine changed over the period shown when priced in euros at the current spot rate?b. Complete the table in the popup window,

LOADING...

. What is the cumulative percentage change in the price of the engine in euros for the two-year period?

c. If the price elasticity of demand for Rolls-Royce turbine sales to Airbus is relatively inelastic, and the price of the engine in British pounds never changes over the period, what does this price change mean for Rolls-Royce's total sales revenue on sales to Airbus of this engine?

d. Compare the prices and volumes for the first quarter of each of the three years shown in the table in part b above. Who has benefitted the most from the exchange rate changes?

Question content area bottom

Part 1

a. Compute the sales prices per unit of engine in euros for the three-year period in the following table:(Round to two decimal places.)

Date		1Q 2007		2Q 2007		3Q 2007		4Q 2007		1Q 2008		2Q 2008
Price (millions of pounds, )		22.56		22.56		22.56		22.56		22.56		22.56
Spot rate (euro = 1.00 pound)		1.4913		1.4744		1.4656		1.4121		1.3189		1.2608
Price (millions of euros, )		33.64		33.26		33.06		31.86		29.75		28.44
Date		3Q 2008		4Q 2008		1Q 2009		2Q 2009		3Q 2009		4Q 2009
Price (millions of pounds, )		22.56		22.56		22.56		22.56		22.56		22.56
Spot rate (euro = 1.00 pound)		1.2579		1.1938		1.1022		1.1365		1.1488		1.1097
Price (millions of euros, )		28.38		26.93		24.87		25.64		25.92		25.03

Part 2

Assuming each Rolls-Royce engine marketed to Airbus is initially priced at

22.56

million each, how has the price of that engine changed over the period shown when priced in euros at the current spot rate?(Select the best response.)

A.

The price of the engine in euros has decreased over the three-year period due to the appreciation of the euro over the period.

Your answer is correct.

B.

The price of the engine in euros has decreased over the three-year period due to the depreciation of the euro over the period.

C.

The price of the engine in euros has increased over the three-year period due to the appreciation of the euro over the period.

D.

The price of the engine in euros has increased over the three-year period due to the depreciation of the euro over the period.

Part 3

b. Complete the table below:(Round to two decimal places.)

Date		1Q 2007		1Q 2008		1Q 2009	% Chg
Price (in millions of pounds, )		22.56		22.56		22.56		%
Spot rate (/)		1.4913		1.3189		1.1022
Price (in millions of euros, )		33.64		29.75		24.87		%
Sales volume (engines)		500		550		600	20.00	%
Total cost to Airbus (millions of )		16,820		16,363		14,922		%
Total revenue to RR (millions of )		11,280		12,408		13,536		%