What would be short-run implication of each pricing strategy

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Reference no: EM131512022

Good Taste Dairy, a NSW based dairy company exports fresh milk to China, whose currency the Chinese Yuan (CNY) has been trading at AUD/CNY5.00. Exports to China are currently 100,000 litres per year at the equivalent price of $0.50 per litre. There is a strong rumour that the CNY will be devalued to AUD/CNY$5.60 in the next month. Should the devaluation actually take place, the CNY is expected to remain unchanged for another 10 years. Accepting the rumour/forecast as given, Good Taste Dairy faces a pricing decision which must be made before actual devaluation. Good Taste Dairy may either: i. maintain the same CNY price and in effect sell for fewer dollars, which case the export volume will not change, or ii. maintain the same dollar price, and raise the CNY price in China to compensate for the devaluation, experience a 20% drop in volume. Direct costs in Australia are 60% of the Australian selling price. What would be the short-run (one-year) implication of each pricing strategy? Which strategy would you recommend to Good Taste Dairy?

Reference no: EM131512022

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