M72
MATH MODULE 7: SOLUTIONS TO EXERCISES
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shop at Curly’s or Larry’s if and only if the average price of all goods is the same at
both stores, in other words if
0.5(
P
CC
+
P
CE
) = 0.5(1.6
P
CC
+ 0.6
P
CE
).
The lefthand side is the average cost per item at Curly’s, and the righthand side is
the average cost per item at Larry’s. If the lefthand side is greater than the right
hand side, Curly’s is more expensive. If the righthand side is greater than the left
hand side, Larry’s is more expensive. Rearranging terms, we find that the two stores
are equally expensive if
P
CC
/P
CE
= 2/3. If
P
CC
/P
CE
> 2/3, then Larry’s is more expen
sive and if
P
CC
/P
CE
< 2/3, then Curly’s is more expensive.
[You can also express the relationship in terms of Larry’s prices, and show that
equal expenditure in both stores requires
0.5([10/6]
P
LC
+ [10/16]
P
LE
) = 0.5(
P
LC
+
P
LE
).
As an exercise, you may want to use
this
equation to work out the equivalent results
as to where you should shop, in terms of
P
LC
/P
LE
.]
M73
MATH MODULE 7: SOLUTIONS TO EXERCISES
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 Fall '12
 Danvo
 Exchange Rate, Supply And Demand, Foreign exchange market, United States dollar

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