Plz add your explanation. Consider the following simple economy. Sheepnip Co. ma
ID: 1145152 • Letter: P
Question
Plz add your explanation.
Consider the following simple economy. Sheepnip Co. makes sheep feed. Better-bald Inc. purchases sheep feed for the sheep it raises and sells wool. Sweeter Sweaters Inc. makes and sells wool sweaters What is the total payments (income) to factors of Better-bald Inc.? Sheepnip Better Sweeter Co bald Inc. Sweaters Number Inc. Sheep Feed $0 Wool Wages Interest Payments Rent Profits $1700 S $o $300$550 $100 $50 $3150 $o $700 $400 What is the total payments (income) to factors of Sweeter Sweaters Inc.? $700 $500 $100 $300 $750 $800 Number What is the GDP for this economy? NumberExplanation / Answer
Factors of production for are receiving wages (by workers), rent (by landowners), interest payment (to capital owners) and profits (to entrepreneur). Hence factors of Better-bald Inc are receiving $300 + $100 + $300 + $750 = $1450.
Similarly, factors of Sweeters sweaters are receiving $550 + $50 + $700 + $800 = $2100.
GDP is computed by value added. The value added by Sheepnip co. is $1700 ($700 + $400 + $500 + $100) because it is the amount at which sheep feed was sold. The value added by Better-bald Inc is similarly $1450 ($300 + $100 + $300 + $750). Finally the Sweeters sweaters have purchased wool at $3150 and have paid a factor payment of $2100. Hence final value of sweaters is $3150 + $2100 = $5250. Check this by adding all the factor payments = $1700 + $1450 + $2100 = $5250.
Hence GDP is $5250.