There are three firms in an economy: A, B, and C. Firm A buys $250 worth of good
ID: 1098239 • Letter: T
Question
There are three firms in an economy: A, B, and C. Firm A buys $250 worth of goods from firm B and $200 worth of goods from firm C, and produces 200 units of output, which it sells at $5 per unit. Firm B buys $100 worth of goods from firm A and $150 worth of goods from firm C, and produces 300 units of output, which it sells at $7 per unit. Firm C buys $50 worth of goods from firm A and nothing from firm B. It produces output worth $1,000. All other products are sold to consumers.
Calculate this economy
Explanation / Answer
Value added by firm A = $5*200 - $250 - $200 = $550
Value added by firm B = $7*300 - $150 - $100 = $1850
Value added by firm C = $1000 - $50 = $950
Economy's GDP = Value added by firm A + Value added by firm B + Value added by firm C = $3350
Govt. Revenue(VA) = .1*$550 + .1*$1850 + .1*$950 = $335
Govt. Revenue(Income) = .1*$550 + .1*$1850 + .1*$950 = $335
Govt. Revenue(Output) = .1*$1000 + .1*$2100 + .1*$1000 = $410