10) Assume the overall US market price for retail chocolate is $7.00 per pound, and in order to attract "Chocoholic Tourists" from Europe, the Hershey company decides to lower its price to $6.00 per pound. Based on the Purchasing Power Parity theory of exchange rates, what will eventually happen the effective price of chocolate for European buyers, assuming the Euro-USD exchange rate starts at 1€ Per $1.00? Using the chart below, determine the exchange rate at which Hershey's effective chocolate prices will match those of the rest of the chocolate market? Chocolate Exchange Exchange Chocolate # of bs Rate Effective budget in Rate Euros 200 budget in $'s Price Euro Euro/$ $/Euro Euros will buy 200.00 € 1.00 1.00 $200 33.33 6.00 €

10) Assume the overall US market price for retail chocolate is $7.00 per pound, and in order to attract "Chocoholic Tourists" from Europe, the Hershey company decides to lower its price to $6.00 per pound. Based on the Purchasing Power Parity theory of exchange rates, what will eventually happen the effective price of chocolate for European buyers, assuming the Euro-USD exchange rate starts at 1€ Per $1.00? Using the chart below, determine the exchange rate at which Hershey's effective chocolate prices will match those of the rest of the chocolate market? Chocolate Exchange Exchange Chocolate # of bs Rate Effective budget in Rate Euros 200 budget in $'s Price Euro Euro/$ $/Euro Euros will buy 200.00 € 1.00 1.00 $200 33.33 6.00 €

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter6: Managing In The Global Economy

Section: Chapter Questions

Problem 12E

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Question

10) Assume the overall US market price for retail chocolate is $7.00 per pound, and in
order to attract "Chocoholic Tourists" from Europe, the Hershey company decides to
lower its price to $6.00 per pound. Based on the Purchasing Power Parity theory of
exchange rates, what will eventually happen the effective price of chocolate for
European buyers, assuming the Euro-USD exchange rate starts at 1€ Per $1.00? Using
the chart below, determine the exchange rate at which Hershey's effective chocolate
prices will match those of the rest of the chocolate market?
# of Lbs
Chocolate Exchange Exchange Chocolate
200
Effective
budget in Rate
Euros
Rate
budget in
Price
Euro
Euro/$
$/Euro
$'s
Euros
will buy
200.00 € 1.00
1.00
$200
33.33
6.00 €
200.00 € 1.05
0.95
$190
31.75
6.30 €
200.00 € 1.10
0.91
$182
30.30
6.60 €
200.00 € 1.15
0.87
$174
28.99
6.90 €
200.00 € 1.20
0.83
$167
27.78
7.20 €
200.00 € 1.25
0.80
$160
26.67
7.50 €
200.00 € 1.30
0.77
$154
25.64
7.80 €
200.00 € 1.35
0.74
$148
24.69
8.10 €

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