# Acme Steel Works produces 2000 tons of pig iron worth $20 per ton. It puts 500 tons of pig iron... ## Question: Acme Steel Works produces 2000 tons of pig iron worth$20 per ton. It puts 500 tons of pig iron into storage for next year and uses the rest (1500 tons of pig iron) to produce 1000 tons of steel worth $60 per ton. The entire production of steel is then sold. Overall Acme pays wages of$25,000, it buys $20,000 worth of coal, which is also needed in production and pays$3,000 in taxes. Acme's contribution to GDP is:

a. $100,000 b.$67,000

c. $70,000. d.$40,000.

e. $20,000. f.$50,000

## Calculating GDP

GDP is the gross domestic product, which is the value of final goods and services produced in an economy in a given period. There are three approaches to calculate GDP: Income approach in which income generate with in the country in a given period is calculated. Production approach, in this the value of final output produced is calculated. Expenditure approach, in this expenditure on final good and services is calculated.

## Answer and Explanation:

option d. 40,000

{eq}\begin{align*} {\rm{Income}} =& 100000 - 20000 - 25000 - 40000 - 3000\\ =& 15000 \end{align*}{/eq}

With income approach:

GDP = compensation of employees + gross operating surplus + gross mixed income + taxes less subsidies on production and imports.

{eq}\begin{align*} {\rm{Corporate \ profits }} =& {\rm{income}} + {\rm{wages}} + {\rm{taxes}}\\ =& 12000 + 25000 + 3000\\ =& 40,000 \end{align*}{/eq}

Hence the Acme's contribution to GDP is 40,000

#### Learn more about this topic:

Gross Domestic Product: Using the Income and Expenditure Approaches

from Economics 102: Macroeconomics

Chapter 4 / Lesson 2
31K