Answered: Consider an economy with two firms.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider an economy with two firms. Firm A produces cotton and firm B produces cotton swabs. In a given year, firm A produces 100,000 pounds of cotton, sells 40,000 pounds of cotton to firm B at $3 per pound, and exports 60,000 pounds of cotton at $3 per pound. Firm A pays $100,000 in wages to consumers. Firm B produces 50,000,000 cotton swabs, and sells 40,000,000 cotton swabs to domestic consumers at $0.04 per swab, and stores 10,000,000 cotton swabs as inventory. Firm B pays consumers $40,000 in wages. In addition to the 40,000,000 cotton swabs consumers buy from firm B, consumers import and consume 5,000,000 cotton swabs, and they pay $0.06 per cotton swab. a. Calculate GDP using 1. Production/value added approach 2. Expenditure approach

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