Answer: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
