Consider a Mexican textile firm that knits sweaters for sale in the USA. The firm incurs in total costs of 16 pesos/sweater and sells the seaters to a US department store for 5 USD/sweater. The current exchange rate is 4 peso/USD.

• What is the firm's markup per sweater as a percentage of revenue?
• if the peso is devalued by 20%, what is the new exchange rate?
• If the firm keeps dollar prices and peso costs constant, what is its markup per sweater as a percentage of revenues after the devaluation?
• If the firm decides to keep its gross margin per sweater constant (at 20%), and expands sales, what would the new dollar price be following devaluation??

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