Suppose Mexico Is a Major Export Market for Your U

question 67

Multiple Choice

Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso depreciates drastically against the U.S. dollar, as it did in December 1994. This means that

• A)your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall.
• B)your firm will be able to charge more in dollar terms while keeping peso prices stable.
• C)your domestic competitors will enjoy a period of facing little price competition from Mexican imports.
• D)both b and c are correct

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Definitions:

Von Neumann-Morgenstern

A theory of expected utility that describes how rational individuals choose among uncertain prospects, emphasizing the maximization of utility for decision-making under uncertainty.

Utility Function

A mathematical representation in economics that portrays an individual's preference ranking for different bundles of goods or outcomes.

Expected Utility

A theory in economics that calculates the utility expected from different choices to assess risk and make decisions.

Income

The financial gain that an individual or business receives, usually from employment, business activities, or investments.