A business sells its output for $2,000. It pays $1,100 in wages, $500 for material bought from other businesses, and has profits of $400. Its value added is
A) is $400.
B) is $1,100.
C) is $1,500.
D) is $1,600.
E) depends on whether it produces intermediate products.

Question

Quizplus · Accepted Answer

Value added is the difference between the revenue generated from the sale of goods and services and the cost of inputs such as materials and wages. Hence, the value added in this case will be $1,500 ($2,000 - $1,100 - $500). Option A is incorrect since it includes only profits as value added. Option B is incorrect as it includes only wages as value added. Option D is incorrect since it includes profits without including wages and cost of inputs. Option E is incorrect since it does not depend on whether the business produces intermediate products.

A Business Sells Its Output for $2,000