Question

In the first stage of manufacturing each final unit of a product, a firm purchases a key input at a price of \(4 per unit. The firm then pays a wage rate of \)3 for the time that labor is exerted, combining an additional \(2 of inputs for each final unit of output produced. The firm sells every unit of the product for \)10. What is the contribution of each unit of output to GDP in the current year?

Short answer

Therefore, each production unit contributes $ 10 to this year's GDP.

Step-by-step solution

- Introduction

Gross domestic product (GDP) is the ultimate value of all goods and services produced within the border.

Step 2- Explanation

Assuming the company buys theinput at a price of $ 4 per unit, the company pays a wage rate of $ 3 for each last unit of output produced, along with an additional $ 2 input. The company sells each product unit for $ 10. GDP can be calculated in a variety of ways, but the value-added method eliminates the possibility of double calculations. In the value-added method, the final value of the process is equal to the price of the goods. Therefore, the contribution of each production unit to GDP is $ 10.