Suppose you are a monopolist who faces a domestic demand curve given by Q = 1,000 –3P. 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%?

399.17 ; 407.42

Explanation:

Given ;

Domestic cost per unit = 300

Foreign cost per unit = 150

Real exchange rate = 1.1

As a monopolist, aim is to maximize income:

Q = 1000 - 3P

THEREFORE,

Price (P) × quantity(Q) - domestic - foreign × exchange rate

P × Q - 300Q - 150Q × 1.1

P × Q - 300(1000-3P) - 150(1000-3P)×1.1

P× (1000-3P) - (300+(150×1.1))(1000-3P)

P× (1000-3P) - (465)(1000-3P)

(P-465) × (1000-3P)

1000P - 3P^2 - 465000 + 1395P

-3P^2 + 2395P-465000

P = 399.17

If real exchange rate increases by 10%,

10% of 1.1 = 0.1 × 1.1 = 0.11

0.11 + 1.1 = 1.21

simply change 1.1 to 1.21 in above equation

P× (1000-3P) - (300+(150×1.21))(1000-3P)

P× (1000-3P) - (481.5)(1000-3P)

(P-481.5) × (1000-3P)

1000P - 3P^2 - 481500 + 1444.5P

-3P^2 + 2444.5P-481500

P = 407.42

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hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi