An economy has two firms. Households own all of the labor services

| November 24, 2016

An economy has two firms. Households own all of the labor services and all of the capital, which they rent out to the firms. Firm A produces sugar using labor services worth $10 and capital services worth $20. It sells $15 worth of sugar to households and $15 of sugar to firm B; a bakery. The bakery produces cakes worth $60 that it sells directly to households. Households earn $30 in wages from Firm A and B combined,

A. What is the value of GDP in this economy?

B. What is the value added by firm A?

c. What is the value added by firm B?

D. How much does the household earn in profit from firms A and B combined?

E. What is total value of intermediate goods and produced in the economy?

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