Knowee
Questions
Features
Study Tools

A logging company fells a tree and sells it to a paper mill for $100. The paper mill processes the tree into paper and sells it to a book publisher for $300. The book publisher uses the paper to print a novel, which is then sold to a bookstore for $600. The bookstore sells the novel to a customer for $1200. What is the value added at each stage of production, and what is the total value added (which should equal GDP)?

Question

A logging company fells a tree and sells it to a paper mill for 100.Thepapermillprocessesthetreeintopaperandsellsittoabookpublisherfor100. The paper mill processes the tree into paper and sells it to a book publisher for 300. The book publisher uses the paper to print a novel, which is then sold to a bookstore for 600.Thebookstoresellsthenoveltoacustomerfor600. The bookstore sells the novel to a customer for 1200. What is the value added at each stage of production, and what is the total value added (which should equal GDP)?

...expand
🧐 Not the exact question you are looking for?Go ask a question

Solution 1

The value added at each stage of production is calculated by subtracting the cost of the raw materials from the selling price.

  1. Logging company: The logging company sells the tree for 100.Sincetherearenorawmaterialsinvolvedinthisstage(weassumethecostofthetreeseedandplantingitisnegligible),thevalueaddedis100. Since there are no raw materials involved in this stage (we assume the cost of the tree seed and planting it is negligible), the value added is 100.

  2. Paper mill: The paper mill buys the tree for 100andsellsthepaperfor100 and sells the paper for 300. The value added is 300−300 - 100 = $200.

  3. Book publisher: The book publisher buys the paper for 300andsellstheprintednovelfor300 and sells the printed novel for 600. The value added is 600−600 - 300 = $300.

  4. Bookstore: The bookstore buys the novel for 600andsellsittoacustomerfor600 and sells it to a customer for 1200. The value added is 1200−1200 - 600 = $600.

The total value added, which equals the GDP, is the sum of the value added at each stage. So, the total value added is 100(loggingcompany)+100 (logging company) + 200 (paper mill) + 300(bookpublisher)+300 (book publisher) + 600 (bookstore) = $1200.

This problem has been solved

Solution 2

The value added at each stage of production is calculated as the difference between the value of the output and the value of the input at each stage.

  1. Logging company: The value added is 100becausethetreeisvaluedat100 because the tree is valued at 100 and there is no input cost mentioned.

  2. Paper mill: The value added is 200(200 (300 - 100).Thepapermillboughtthetreefor100). The paper mill bought the tree for 100 and sold the paper for $300.

  3. Book publisher: The value added is 300(300 (600 - 300).Thebookpublisherboughtthepaperfor300). The book publisher bought the paper for 300 and sold the book for $600.

  4. Bookstore: The value added is 600(600 (1200 - 600).Thebookstoreboughtthebookfor600). The bookstore bought the book for 600 and sold it to the customer for $1200.

The total value added, which equals the GDP, is the sum of the value added at each stage.

Total value added = 100(loggingcompany)+100 (logging company) + 200 (paper mill) + 300(bookpublisher)+300 (book publisher) + 600 (bookstore) = $1200.

So, the total value added (GDP) is $1200.

This problem has been solved

Similar Questions

Assume that a grower of flower bulbs sells its annual output of bulbs to an Internet retailer for $70,000. The retailer, in turn, brings in $160,000 from selling the bulbs directly to final customers.  Instructions: Enter your answer as a whole number. What amount would these two transactions add to personal consumption expenditures and thus to GDP during the year? $ .

Consider the following figures: the GDP of an economy is $300 billion, household consumption is $85 billion, government spending is $140 billion, investments are $50 billion and total imports are $100 billion. What will be the value of total exports?$125 billion$75 billion$25 billion$50 billion

The difference between the total sales of some articles if sold for Rs.12 per article instead of Rs.9 per article is Rs.150. If the total costs of these articles is Rs.250, then find the total sales value of 21 articles if profit is 20%.

A shopkeeper earns a profit of 15% after selling a book at 20% discount on the printed price. The ratio of the cost price and printed price of the book is?

A sells an article to B at a profit of 15%. B then sells it to C, making a profit of 20%. If C paid Rs.690 What is the original price of the article?

1/3

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.