There are three firms in an economy: A, B, and C. Firm A buys $250 worth of good

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

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