University of California, Riverside Econ 103A Macroeconomic Theory Winter 2008 Review Problems Chapter 2 1. Measuring Economic Activities Question 1 (Long Question) There are two companies in this economy: Company A and B. Company A owns a farm and produces milk. It sells its product to Company B and the public. Company B produces cheese. It sells its products to the public only. The following table shows the transactions of each business during a year. In particular, Company B cannot sell all the current output to the public. Part of its output is stored as inventory ($15,000). Company A Company B Wages paid to workers $8,000 Wages paid to workers $6,500 Revenue received Milk purchased from Company A $10,000 Milk sold to public $22,000 Revenue received $35,000 Milk sold to Company B $10,000 Inventory Investment $15,000 (a) What is the total amount of output produced by Company B ? Total Output = Revenue received + Inventory Investment = $ 35,000 + $15,000[Inventory investment is the amount of newly produced goods that are unsold and is thus added to the inventory stock.] (b) What is the value added of Company B ? Value Added = Total Output – Value of Input that is purchased = $35,000 + $15,000 - $10,000 1
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