A U. S.-owned car factory in Mexico produces $5 million of cars. $2.5 million of these cars are sold in Mexico and the other $2.5 million are sold in the U. S. In both cases $1 million of the value of the cars was due to U. S-owned equipment located in Mexico and U. S. managers working in Mexico. How much did this production contribute to U. S. GDP?

Question

Jonathan Lamb

Business

30 November, 20:07

A U. S.-owned car factory in Mexico produces $5 million of cars. $2.5 million of these cars are sold in Mexico and the other $2.5 million are sold in the U. S. In both cases $1 million of the value of the cars was due to U. S-owned equipment located in Mexico and U. S. managers working in Mexico. How much did this production contribute to U. S. GDP?

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Answers (1)

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Paul Duncan · Answer 1

The amounted contributed to U. S. GDP is $2 million

Explanation:

First and foremost, the question reiterated that $1 m is due to U. S-owned equipment company and U. S. managers working in Mexico, this is where the key to unlocking the question lies.

On the basis that the money is shared equally between the equipment company and the U. S managers working in Mexico, each group gets $500,000 which is an input for the car manufacturer. However, $2.5m worth of cars are sold to U. S-an output, deducting the $500000 due to the managers from the output value gives $2m