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(4) (3 points) Bretscher Section 1.1, Exercise 24 (I have copied the question below for anyone who doesn’t
have the book.)
The Russian-born US economist and Nobel laureate Wassily Leontief (1906-1999) was interested in
the following question: What output should each of the industries in an economy produce to satisfy
the total demand for all products? Here, we consider a very simple example of input-output analysis,
an economy with two industries, A and B. Assume that the consumer demand for their products
is, respectively, 1,000 and 780, in millions of dollars per year. What outputs a and b, in millions
of dollars, should the two industries generate to satisfy the demand? We have to take into account
1
2
the interindustry demand. Let us say that industry A produces electricity. Of course, producing
almost any product will require electrical power. Suppose that industry B needs 10 cents worth of
electricity for each $1 of output B produces and that industry A needs 20 cents worth of B’s products
for each $1 of output A produces. Find the outputs a and b needed to satisfy both consumer and
interindustry demand.
(5) (4 points) A company earns before-tax profits of $2,000,000. It has committed to donating 10% of
its after-tax profits to a not-for-profit chosen by its employees. It must pay state taxes of 7% (after
the donation) and a federal tax of 21% (after the state taxes and the donation are paid). Let S, F, D
represent the amounts of state taxes, federal taxes and charitable donation, respectively. Write down
equations that describe each of the following statements:
i) State tax is 7% of profits after the donation.
ii) Federal tax is 21% of profits after that state taxes and donation.
iii) The company donates 10% of its after-tax profits.
Write down the system of equations and the augmented matrix for the system.