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Consider an economy with two firms. Firm A produces tomatoes

Question : Consider an economy with two firms. Firm A produces tomatoes : 6755

Consider an economy with two firms. Firm A produces tomatoes and firm B produces tomato sauce. In a given year, firm A produces 100,000 pounds of tomatoes, sells 40,000 pounds of tomatoes to firm B at $3 per pound, exports 60,000 pounds of tomatoes at $3 per pound. Firm A pays $100,000 in wages to consumers. Firm B produces 50,000 gallons of tomato sauce, and sells 40,000 gallons to domestic consumers at $4 per gallon, and stores 10,000 gallons as inventory. Firm B pays consumers $40,000 in wages. In addition to the 40,000 gallons of tomato sauce consumers buy from firm B, consumers import and consume 5,000 gallons of tomato sauce, and they pay $6 per gallon for the imported tomato sauce. (a) Calculate GDP using i. the product approach; ii. the expenditure approach; iii. the income approach. (b) What is GNP in this economy? Determine GNP and GDP in the case where 20% of firm A's shares is owned by foreigners, so that 20% of its profits go to foreigners and are not distributed to domestic consumers.

 

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