MNLogs harvested logs (with no inputs from other companies) from their property

Question

MNLogs harvested logs (with no inputs from other companies) from their property in northern Minnesota. They sold these logs to MNLumber for $1,000 and MNLumber cut and planed the logs into lumber. MNLumber then sold the lumber for $3,000 to MNFurniture. MNFurniture used the lumber to produce 100 tables that they sold to customers for $60 each.

Instructions: Enter your responses as integer values.

a.  Complete the table below to calculate the value added by each firm.

  Company

Revenues

Cost of purchased inputs

Value added

  MNLogs

$

$

$

  MNLumber

$

$

$

  MNFurniture

$

$

$

b. Suppose that all of these transactions took place in 2011. By how much did GDP increase because of these transactions?

$.

c.  Suppose that MNLogs harvested the logs in October 2011 and sold them to MNLumber in December 2011. MNLumber then sold the finished lumber to MNFurniture in April 2012 and MNFurniture sold all 100 tables during the rest of 2012. By how much did GDP increase in 2011 and 2012 because of these transactions?

GDP increase in 2011: $.

GDP increase in 2012: $.

  Company

Revenues

Cost of purchased inputs

Value added

  MNLogs

$

$

$

  MNLumber

$

$

$

  MNFurniture

$

$

$

Explanation / Answer

(a) Following is the complete table -

(b) Calculate increase in GDP due to these transactions -

Increase in GDP = Value added by MNLogs + Value added by MNLumber + Value added by MNFurniture

Increaes in GDP = $1,000 + $2,000 + $3,000

Increase in GDP = $6,000

GDP will increase by $6,000

(c) It has been provided that sale by MNLogs has taken place in 2011 while sale of MNLumber and MNFurniture has taken place in 2012.

So, only value added by MNLogs will be part of GDP of 2011 while value added bu MNLumber and MNFurniture will be part of 2012.

Thus,

GDP increase in 2011 = Value added by MNLog = $1,000

GDP increase in 2012 = Value added by MNLumber + Value added by MNFurniture = $2,000 + $3,000 = $5,000

Company Revenue (R) Cost of inputs purchased (C) Value Added (V) V = R - C MNLogs $1,000 $0 $1,000 MNLumber $3,000 $1,000 $2,000 MNFurniture $6,000 $3,000 $3,000

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