Your company makes leather recliners.The leather is prepared in Mexico by a branch of your company then shipped to the US for construction.The recliners sell for $300 each.Your lawyers have advised you that the leather can be valued anywhere between $80 and $120.The costs in Mexico are $60, the additional costs in the US are $100.The Mexican tax rate you face is 25%, and assume that your US rate is 35%.

1. What price would you set for the leather to minimize taxes?
2. Now assume the US charges a 15% tariff on the leather. What price do you now want to charge?
3. Would you be better off if you had a subsidiary rather than a branch in Mexico? Discuss.