Question6 An Australian company that exports its product to the US market needs to make a decision on the price of its product in the US. Recently, the USD has depreciated and its profit in AUD has been affected. Which of the following statements is TRUE? Select one alternative: If the elasticity of US demand to price is extremely low, the firm can consider increasing the price of its product to increase profit in AUD. If there is a substantial scale of economy in production, the firm should increase the price of its product since it will increase the margin of the product. The firm can maintain its margin in AUD and market share in the US by not changing its price. The firm should not consider setting up a production plant in the US, since it would certainly increase its exposure to the USD. ResetMaximum marks: 2 Flag question undefined

Question

BlackTom AI · Accepted Answer

First, let's restate the scenario and the options in focus, so every choice can be weighed on its own merits.
- Situation: An Australian firm exports to the US. The USD has depreciated, reducing profit in AUD terms. We must pick which statement is TRUE about pricing strategy.
- Options:
  1) If the elasticity of US demand to price is extremely low, the firm can consider increasing the price of its product to increase profit in AUD.
  2) If there is a substantial scale of economy in production, the firm should increase the price of its product since it will increase the margin of the product.
  3) The firm can maintain its margin in AUD and market share in the US by not changing its price.
  4) The firm should not consider setting up a production plant in the US, since it would certainly increase its exposure to the USD.

Option 1 analysis: With very inelastic (low elasticity) US demand, quantity demanded is not very sensitive to price changes. If price is increased, total revenue in USD can rise or stay similar, and when converted to AUD, the profit in AUD may rise because the drop in quantity is small. This aligns with basic price-elasticity reasoning: for inelastic demand, price increases tend to raise revenue (and potentially profit) in the same currency, which, when converted, can improve AUD profit. This makes the statement plausible and potentially true.

Option 2 analysis: While economies of scale can reduce unit costs, simply raising price to improve margin ignores demand response. If the price rise pushes quantity down, total profit may fall, even with lower costs. The claim that price should automatically rise just because of scale economies ignores elasticity and competitive response, making this option dubious as a universally true rule.

Option 3 analysis: Not changing the price to keep both AUD margin and US market share assumes that the exchange rate movement will not erode AUD margins or that volume offsets any margin change. In reality, a depreciation of the USD against AUD that reduces AUD profit means that keeping the same price in USD (thus leaving AUD margin unchanged) would still translate into lower AUD profit unless currency hedges or price adjustments are made. Therefore, this statement is generally false as a blanket rule.

Option 4 analysis: Recommending against setting up a US production plant because it would increase USD exposure is overly absolute. Local production can hedge currency risk, reduce shipping costs, or improve service levels, and is not guaranteed to “certainly” increase exposure. This makes the blanket claim improper and false as a universal rule.

Putting the pieces together, Option 1 is the only choice that aligns with sound international pricing logic under an inelastic US demand scenario and currency considerations, while the other options rely on flawed assumptions or overly broad claims about cost, demand, or currency strategy.

类似问题

If a company needs to raise the prices of some its products, it should choose to raise the prices of Blank ______ products because relatively fewer customers will stop buying the product as a result.

Calculate the price elasticity of demand for a change in price from $10.00 to $15.00. Price Quantity $10.00 20 $15.00 15

For substitutes, the cross-price elasticity is _, the own price elasticity is _.

If the price elasticity of demand coefficient is (-)1, total revenue will remain constant when price rises or price falls.

Several companies produce latex gloves that are used in a variety of different industries. If one of the glove manufacturers decreases its price by just a few percentage points, it will result in a significant increase in quantity demanded. The demand for latex gloves is:

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单