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 gdp.

$3,350

Explanation:

GDP is the addition of value of goods and service minus purchase of intermediate goods.

Formula to calculate value-added by each firm is shown below:

Value-added = Sales by Firm + Change in stock – purchase of raw material

Value added by firm A = $5 × 200 + 0 – ($250 + $200)

                                      = $550

Value added by firm B = $7 × 300 + 0 – ($150 + $100)

                                      = $1,850

Value added by firm C = $1,000 + 0 - $50

                                      = $950

Economy's GDP = Value added by firm A + Value added by firm B + Value added by firm C

                           = $550 + 1,850 + 950

                           = $3,350

The value of GDP is $3,350

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