Suppose, the cost of production of a widget in Mexico is 5 pesos.Assume that initially the exchange rate between the peso and the dollar is 2 pesos per dollar.Later, the exchange rate changes to 2.5 pesos per dollar.In the initial situation, a widget sold in the U.S.would be priced at_____; after the change in the exchange rate, the widget would be priced at______ .

Question

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Initially, at 2 pesos per dollar, the widget costs 5 pesos, which is $2.50. After the exchange rate changes to 2.5 pesos per dollar, the widget still costs 5 pesos, which is now $2.00.

Suppose, the Cost of Production of a Widget in Mexico