Question

Use the following information to answer the question. There are three firms in an economy: X, Y, and Z. Firm X buys $200 worth of goods from Y, and $300 worth of goods from firm Z, and produces 250 units of output at $4 per unit. Firm Y buys $150 worth of goods from firm X, and $250 worth of goods from firm Z, and produces 300 units of output at $6 per unit. Firm Z buys $75 worth of goods from firm X, and $50 worth of goods from firm Y, and produces 500 units at $2 per unit. Given this information, what is the economy’s GDP? Hint: remember that part of each firm’s production is used by one of the other firms as a production input (an intermediate product).Given the information about three firms in an economy, what is the economy's GDP?

a) $800
b) $1,050
c) $1,125
d) $1,575

Answer 1

The GDP of the economy can be calculated by adding up the total value of all final goods and services produced within a specific time period. In this case, by considering the transactions between firms X, Y, and Z and their production outputs, the GDP is $3800.

Step-by-step explanation:

The GDP of an economy can be calculated by adding up the total value of all final goods and services produced within a specific time period. In this case, we need to consider the production and transactions between firms X, Y, and Z. Firm X buys $200 worth of goods from Y and $300 worth of goods from Z. However, firm Y also buys goods from X and Z, and firm Z buys goods from X and Y. The final output is produced by each firm at different prices per unit. To calculate the GDP, we add up the value of each firm's output:

1. Firm X: 250 units * $4/unit = $1000
2. Firm Y: 300 units * $6/unit = $1800
3. Firm Z: 500 units * $2/unit = $1000

The total GDP is the sum of these values: $1000 + $1800 + $1000 = $3800. Therefore, the economy's GDP is $3800.