Consider the information in the attached file. Fill out the following boxes: a)
ID: 2495302 • Letter: C
Question
Consider the information in the attached file. Fill out the following boxes:
a) Value of final goods sold by firm 1 = _____ dollars.
Value of final goods sold by firm 2 = _____ dollars.
Value of final goods sold by firm 3 = _____ dollars.
Value of final goods sold by firm 4 = _____ dollars.
Nominal GDP as the sum of the market values of the all final goods = _____ dollars.
b) Value added by firm 1 = _____ dollars.
Value added by firm 2 = _____ dollars.
Value added by firm 3 = _____ dollars.
Value added by firm 4 = _____ dollars.
Nominal GDP as the sum of the values added = _____ dollars.
c) Income generated by firm 1 = _____ dollars.
Income generated by firm 2 = _____ dollars.
Income generated by firm 3 = _____ dollars.
Income generated by firm 4 = _____ dollars.
Nominal GDP as the total income generated = _____ dollars.
Four firms operate in a small country. The following table shows the results of operations for these four firms. Here is some additional information: 1. Firm 1 sells its products to households, buys intermediate goods from Firm 2. 2. Firm 2 sells its products to Firm 1 and Firm 3, buys intermediate goods from Firm 3 3. Firm 3 sells its products to Firm 2 and Firm 4, buys intermediate goods from Firm 2. 4. Firm 4 sells its products to households, buys intermediate goods from Firm 3. The data Firm 1 Sale to households Purchase of intermediate goods from Firm 2 Wages, interest, and rent paid to households $540,000 $200,000 $300,000 Firm 2 Sale to Firm 1 Sale to Firm 3 Purchase of intermediate goods from Firm 3 Wages, interest, and rent paid to households $200,000 $130,000 $150,000 $180,000 Firm 3 Sale to Firm 2 Sale to Firm 4 Purchase of intermediate goods from Firm 2 Wages, interest, and rent paid to households $150,000 $80,000 $130,000 $135,000 Firm 4 Sale to households Purchase of intermediate goods from Firm 3 Wages, interest, and rent paid to households $385,000 $80,000 $90,000 On SmartSite enter your numbers without dollar signs, commas, or decimal places.Explanation / Answer
(a) Final goods are those goods that are used for final consumption purpose and not for further production.
Goods sold to households are generally considered as final goods.
Only Firm 1 and Firm 4 are selling goods to households and thus are selling final goods.
Firm 2 and Firm 3 are not selling goods directly to households but to other firms and therefore are not selling final goods.
So,
Value of final goods sold by Firm 1 = 540,000 dollars
Value of final goods sold by Firm 2 = 0 dollars
Value of final goods sold by Firm 3 = 0 dollars
Value of final goods sold by Firm 4 = 385,000 dollars
Nominal GDP as the sum of the market value of all the final goods = 540,000 + 385,000 = 925,000 dollars
(b) Calculate Value added by Firm 1
Value added = Sale to households - Purchase of intermediate goods from Firm 2
= $540,000 - $200,000
= $340,000
The value added by Firm 1 is $340,000.
Calculate value added by Firm 2 -
Value added = Sale to firm 1 + Sale to firm 3 - Purchase of intermediate goods from firm 3
= $200,000 + $130,000 - $150,000
= $180,000
The value added by Firm 2 is $180,000.
Calculate value added by Firm 3 -
Value added = Sale to firm 2 + Sale to firm 4 - Purchase of intermediate goods from firm 2
= $150,000 + $80,000 - $130,000
= $100,000
The value added by firm 3 is $100,000.
Calculate value added by Firm 4 -
Value added = Sale to households - Purchase of intermediate goods from firm 3
= $385,000 - $80,000
= $305,000
The value added by firm 4 is $305,000.
Calculate Nominal GDP as the sum of the values added -
Nominal GDP = Value added by Firm 1 + Value added by Firm 2 + Value added by Firm 3 + Value added by Firm 4
= $340,000 + $180,000 + $100,000 + $305,000
= $925,000
The Nominal GDP as the sum of the values added is $925,000.
(c) Calculate profit of Firm 1 -
Profit = Sales - Cost = $540,000 - $500,000 = $40,000
Calculate income generated by Firm 1 -
Income generated = Profit + wages, interest, and rent paid to households = $40,000 + $300,000 = $340,000
The income generated by Firm 1 is $340,000.
Calculate profit of Firm 2 -
Profit = Sales - Cost = $330,000 - $330,000 = $0
Calculate income generated by Firm 2 -
Income generated = Profit + wages, interest, and rent paid to households = $0 + $180,000 = $180,000
The income generated by Firm 2 is $180,000.
Calculate profit of Firm 3 -
Profit = Sales - Cost = $230,000 - $265,000 = -$35,000
Calculate income generated by Firm 3 -
Income generated = Profit + wages, interest, and rent paid to households = -$35,000 + $135,000 = $100,000
The income generated by Firm 3 is $100,000.
Calculate profit of Firm 4 -
Profit = Sales - Cost = $385,000 - $170,000 = $215,000
Calculate income generated by Firm 4 -
Income generated = Profit + wages, interest, and rent paid to households = $215,000 + $90,000 = $305,000
The income generated by Firm 4 is $305,000.
Calculate Nominal GDP as the total income generated -
Nominal GDP = Income generated by Firm 1 + Income generated by Firm 2 + Income generated by Firm 3 + Income generated by Firm 4
Nominal GDP = $340,000 + $180,000 + $100,000 + $305,000
Nominal GDP = $925,000
Thus, Nominal GDP as the total income generated is $925,000.