Assume that a firm buys all the parts that it puts into an automobile for $10,000, pays its workers $10,000 to fabricate the automobile, and sells the automobile for $22,000. In this case, the value added by the automobile company is:
A) $10,000.
B) $12,000.
C) $20,000.
D) $22,000.

Question

Quizplus · Accepted Answer

Value added is the difference between the cost of inputs and the price of the final product. In this case, the cost of inputs (parts and labor) is $20,000 and the price of the final product (automobile) is $22,000. Therefore, the value added by the automobile company is $2,000.

Assume That a Firm Buys All the Parts That It