Pricing in Two Markets Global Products, Inc. has been making an electronic appliance for the domestic market. Demand for the appliance is price sensitive, and the demand curve is known to follow the linear function D = 4000-5P, where D represents annual demand and P represents selling price in the home currency, which is the Frank (F). The cost of manufacturing the appliance is 100F.
For the coming year, Global is planning to sell the same product in a foreign market, where the currency is the Marc (M). From surveys, the demand curve in the foreign country is estimated to follow a different linear function, D = 2000-2P, where the price is denominated in Marcs.
All production will be carried out at Global's domestic plant, with the expectation that the unit cost will remain unchanged. The exchange rate is 1.5 M/F, and Global plans to offer an equivalent price in both markets.
(a) If Global were to operate exclusively in its domestic market, what would be its profitmaximizing price and its annual profit?
(b) When Global sells in both markets at one equivalent price, what is its profitmaximizing price and its annual profit?