Question 27 2/ 2 pts Suppose there are only two firms in an economy: Rolling Raw
ID: 1143257 • Letter: Q
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Question 27 2/ 2 pts Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc, which uses the rawhide to produce and sell dog chews. With each $1 worth of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $2.50. Neither firm had any inventory at the beginning of 2014. During that year, Rolling Rawhide produced enough rawhide for 2000 dog chews. Chewy Chomp, Inc. bought 90% of that rawhide for $1800 and promised to buy the remaining 10% for $200 in 2015. Chewy Chomp, Inc. produced 1800 dog chews during 2014 and sold each one during that year for $2.50. What was the economy's GDP for 2014? S3,800 $4,500 $4,700 $5,000Explanation / Answer
27.
The GDP can be defined as the final market value of all goods and services produced in the current financial year in the domestic territory of the country.
Since there are only two firms in the economy Rolling Rawhide and Chewy Chomp inc. and Chewy chomp inc. uses Rawhide final product in the form of inputs.
So for calculating GDP we will consider the final market value of Chewy Chomp Inc. product only.
Since Rolling Rawhide produces 2,000 rawhide in 2014 and sell 1800 to Chewy at the rate of $1 and Chewy firms promise that it will purchase remaining 200 rawhide in 2015 for the price of $200.
Since chewy uses 1,800 rawhide for the production of dogchews and sell it at the rate of $2.50 per unit.
Hence the final product value of Chewy chomp inc. will be=1,800*2.50
=$4,500
Rolling rawhide remaining quantity value of the product = $1*200
=$200
It means total market value of all goods produced in year 2014 will be= $4,500+$200
=$4,700
Hence option third is the correct answer.
Option third ; $4,700
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