# Consider a small country with only three producers, X, Y, and Z, who produce ink, pen, and paper, respectively. Y uses ink (output of X) in its production of pens. Xproduces 1,337 liters of ink monthly, Y produces 56,967 pens monthly, and Z produces 20 metric tons of paper monthly. X sells all of the ink it produces to Y at a marketprice of \$330 per liter. Y sells 43,494 pens at a market price of \$0.97 per pen and stores the rest as inventory. Z sells all of its paper at the market price of \$834 permetric tonThe annual market value of production in this economy is \$(Round your answer to two decimal places.)

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What is the annual market value of production in this economy?

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Step 1

There are three different types of commodities in the economy produced by X, Y and Z and they are the Ink, Pen and the Paper. The quantity of each commodity produced by the producers is 1,337 liter ink by X, 56,967 pens by Y and 20 metric ton paper by Z. Full output produced by X are consumed by Y which means that the output of X is an intermediary good of Y. thus, the total market value of X cannot be higher than the total market value of output of Y. This means that the price per liter of ink would be \$3.30 instead of \$330. Otherwise the net value of Y would become negative as the cost of ink would be much higher than the price of pens.

Step 2

By multiplying the price of the commodities with their quantities produced and adding them together helps to calculate the monthly value of production. The quantity of pen kept as inventory will be valued similar to the unit which is s...

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