Question

Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from $80 million to $160 million between one year and the next.

Required:
a. Assuming that the price of gold increased by 100 percent over the same period, by what numerical amount did Glitter Gulchâs real output change?
b. If the price of gold had not changed, what would have been the change in Glitter Gulchâs real output?

Answer 1

Answer:

A. There is no change in real output

B. There is a change of $80,000,000 in the real output.

Explanation:

A. With regards to the question, the output being referred to is the gold amount produced in an imaginary situation.

Sales revenue for the first year is $80,000,000 and it doubled to $160,0000 the following year and the next. Since there is 100% increase in the price of gold over same period, it therefore means that the 100% price increase results in 100% increase in sales revenue.

The above simply means that the actual output of gold from the mine remains the same

B. Where the price remains the same in a possible scenario, it would then be that to achieve full increment in sales revenue(100%), then the actual output of Glitter Gulch would also change by the full output(100%).

The change in value would be

= $160,000,000 - $80,000,000

= $80,000,000