A firm's value added equals:
A) its revenue minus all of its costs.
B) its revenue minus its wages.
C) its revenue minus its cost of intermediate goods.
D) its revenue minus its wages and the cost of intermediate goods.
E) its revenue minus its wages and profit.

Question

Quizplus · Accepted Answer

Value added refers to the difference between a firm's revenue and the cost of intermediate goods (i.e., goods that are used in the production process but are not directly sold to consumers). This is because the value added represents the contribution that the firm makes to the final product that is sold to consumers. Therefore, option C is the best choice as it is the only one that correctly identifies a firm's revenue minus its cost of intermediate goods as the measure of value added.

A Firm's Value Added Equals