Cost structure marginal revenue - Finance Managerial Accounting by ClassOf1

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									              Sub: Finance                                                         Topic: Managerial Accounting



              Question:
              Drawing of a firm’s cost structure and the marginal revenue line.

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              Acme, Inc., a U.S. multinational corporation, has a subsidiary in Mexico, which sells goods in the
              Mexican market that are produced entirely using U.S. dollar inputs. Because of local
              competition, the subsidiary is a price taker in Mexican pesos.

                        a. Draw a diagram of the firm's cost structure and the marginal revenue line. In the
                        diagram, show the initial level of profit from the Mexican operations. Briefly describe
                        the amount of profit.

                        b. Now consider what happens if the Mexican peso depreciates by 15 percent. Show the
                        effects of depreciation in the diagram. Specify the new level of profit from the Mexican
                        operations. Describe the profit change in terms of the margin effect and the
								
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