Question

Suppose a farmer grows a bag of wheat and sells it to a miller for K100. The miller turns the wheat into flour and then sells the flour to a baker for K300. The baker uses the flour to make bread and sells the bread worth K 600 to consumers. What is the value added at each level?

Answer 1

The value added at each step is K100 by the farmer, K200 by the miller, and K300 by the baker, which represents the increase in value that each business adds to its inputs during production.

Step-by-step explanation:

The question is asking us to calculate the value added at each stage of the production process from wheat to bread. Value added is the increase in value that a business adds to its inputs. To find the value added at each step, we subtract the cost of the inputs from the sales price at each stage of production. Here's how we break it down:

• The farmer sells wheat for K100; the input cost is not provided, but assuming this is the initial stage, we can consider the input cost as zero, making the value added K100.
• The miller buys the wheat for K100 and sells the flour for K300, adding K200 of value (K300 - K100).
• The baker buys flour for K300 and sells bread for K600, adding K300 of value (K600 - K300).

Therefore, the value added by the farmer is K100, by the miller is K200, and by the baker is K300.