International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 8

Suppose you are a monopolist who faces a domestic demand curve given by Q = 1,000 2 P. Your domestic cost of production involves domestic costs per unit of 300 and a foreign cost per unit produced of 150. If the real exchange rate is 1.1, what would be the price you would charge and the quantity you would sell How do these variables change when the real exchange rate increases by 10%