Suppose There Are Only Two Firms in an Economy: Rolling

Multiple Choice

Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $2 of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $5. Neither firm had any inventory at the beginning of 2008. During that year, Rolling Rawhide produced enough rawhide for 1000 dog chews. Chewy Chomp, Inc. bought 75% of that rawhide for $1500 and promised to buy the remaining 25% for $500 in 2009. Chewy Chomp, Inc. produced 750 dog chews during 2008 and sold each one during that year for $5. What was the economy's GDP for 2008?

A) $3750
B) $4250
C) $5250
D) $5750