problem: Acme, Inc., a UNITED STATE multinational corporation, has a subsidiary in Mexico, which sells goods in the Mexican market that are produced entirely using UNITED STATE dollar inputs. Because of local competition, the subsidiary is a rate taker in Mexican pesos.
[A] Make a diagram of the company's cost structure and the marginal revenue line. In the diagram, show the initial level of profit from the Mexican operations. describe briefly the amount of profit.
[B] Now consider what happens if Mexican peso depreciates by 15%. Show the effects of depreciation in the diagram. Specify the new level of profit from the Mexican operations. describe profit change in terms of the margin effect and the volume effect.