2). In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the tanner for

$400. The tanner then sells leather to the shoemaker for $700, and the shoemaker then sells $1200 worth of

shoes. The value added by the tanner is

A). $0.

B). $300.

C). $500.

D). $1200

The correct answer is:

$300 (B)

Explanation:

The value added on a product is the amount of profit made on the product, after the cost incurred have been deducted. In this case, the tanner bought the leather for $400, and then sells it for $700, therefore, the value added is calculated as:

value added = selling price - cost price = 700 - 400 = $300.