Read and analyze the case study and answer the following questions.

Case background and overview:

Molto Delizioso is an Italian coffee machine maker that is run in the UK subsidiary of the company by managing director Nigel Montague. The machines are bought in the European currency, the Euro, and sold in return in the English market in Pounds. Customers in the UK are willing to pay 200 pounds per coffee machine. There is fear by the maker of coffee machines that the new Brexit will affect sales and cause the pound to be devalued.

What should they do to their profit maximized?

Note:

• Apply the concept of profit maximization in the case study.
• Apply the concept of price elasticity. Make assumptions about the concept of price elasticity at 1.1 and 0.8.
• Apply the concept exchange rate. The effect of exchange rate on trade (imports and exports) when a currency appreciates and depreciates.

Scenarios and assumptions (pre-Brexit and post-Brexit):

• Post Brexit at the same price (200) pounds (calculate and elaborate)
• Post Brexit price increase to 235 pounds with 0.8 elasticity(calculate and elaborate)
• Post Brexit price increase to 235 pounds with 1.1 elasticity(calculate and elaborate)
• Do you have another scenario or assumption in mind?

Summary:

• What will happen if we assume the market is close to the perfect competition?
• At what price the profit is maximized?

Recommendations:

• What are your recommendations? Do you increase the price or maintain the price pre-Brexit? Why?
• Would you increase the price or maintain the price post-Brexit? Why?

Answer rating: 100% (QA)

Case1 Post Brexit at the same price 200 pounds Revenue 200 x 40000 units 8000000 pounds Import cost 90 cost per unit x 40000 units 3600000 euros Import cost in pounds 3600000 116 exchange rate 3103448 ... View the full answer