Homework Answers
Initially, 1 CAD = 1.5 Euros
Value of imports for producing 1 million units of output = 2 million euros
Value of the above imports in CAD = 2 million euros/1.5 euros per CAD = 1.33 million CAD
If CAD appreciates 20%, then 1 CAD = (1+0.20) * 1.5 euros = 1.20 * 1.5 euros = 1.8 euros
Value of the above imports in CAD = 2 million euros/1.8 euros per CAD = 1.11 CAD
% change in value of imports in CAD = [(1.11 million - 1.33 million)/1.33 million] * 100 = [-0.22/1.33]*100 = -16.54%
The firm's unit cost of production decreases by 16.54%(nearest answer is 20%)
Ans: It decreases by 20%
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