Question

1. A potato farmer grows sells $2,000 worth of potatoes to a frozen food company.
   The frozen food company cuts, bags, and freezes the potatoes, and sells them as frozen French fries for $3,500. A food truck purchases the frozen fries, deep fries them, and sells them to patrons for $6,500.

Determine the value added in each step, and the total value added to the national income.

Answer 1

The potato farmer grows and sells it at $2,000 to a frozen company. If assume the farmer’s input is zero, then the value added is $2,000.

Next, the company sells that to French fries for $3,500.

In this step, the value added will be $3,500 - $2,000 = $1,500

Next, a food truck purchases and sells them to patrons for $6,500.

In this step, the value added will be $6,500 - $3,500 = $3,000

Total Value Added = $2,000 + $1,500 + $3,000 = $6,500

The total valued added to national income will be $6,500.