If a firm hires labor for $8,000,pays rent of $4,000,buys raw materials for $13,000 from another firm,earns profits of $1,200,and sells its output for $31,000,the value added by the firm is _____.

Question

Quizplus · Accepted Answer

Value added by the firm is calculated by subtracting the cost of its inputs from the selling price of its output. 
Value added = Selling price - Cost of inputs
= $31,000 - ($8,000 + $4,000 + $13,000)
= $31,000 - $25,000
= $6,000
Thus, the value added by the firm is $6,000, which is closest to answer choice C ($18,000). None of the other answer choices are close to the actual value added.

If a Firm Hires Labor for $8,000,pays Rent of $4,000,buys