In the exchange rate model in Example 7.2, we found that the optimal unit revenue, when converted to dollars, is $85.71. Now change the problem so that the company is selling in Japan, not the United Kingdom. Assume that the exchange rate is 0.01157 ($/¥) and that the constant in the demand function is 161,423,232,300, but everything else, including the elasticity of the demand function, remains the same. What is the optimal price in yen? What is the optimal unit revenue when converted to dollars? Is it still $85.71? Do you have an intuitive explanation for this?
(Reference Example 7.2)
We continue Example 7.1 but now assume that Madison manufactures its product in the United States and sells it in the United Kingdom (UK). Given the prevailing exchange rate in dollars per pound, Madison wants to determine the price in pounds it should charge in the UK so that its profit in dollars is maximized. The company also wants to see how the optimal price and the optimal profit depend on exchange rate fluctuations.
Objective To use a nonlinear model to find the price in pounds that maximizes the profit in dollars.
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