Which term denotes the net contribution made by a firm in the process of production?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Value added
A firm’s own contribution is what it adds to the inputs it buys. That is its value added: value of production minus the value of intermediate goods used.
Option (1) Value added — Correct. It is the value of production minus the value of intermediate goods used.
Option (2) Value of output — Incorrect. It also counts the inputs bought from other firms. Counting it in full leads to double counting.
Option (3) Intermediate consumption — Incorrect. It is the value of inputs bought from other firms and used up in production. It is the part deducted to find value added.
Option (4) Net investment — Incorrect. It is the addition to capital stock, gross investment minus depreciation, not a firm’s contribution to production.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … Therefore, the net contribution made by the bakers is, Rs 200 – Rs 50 = Rs 150. Hence, aggregate value of goods produced by this simple economy is Rs 100 (net contribution by the farmers) + Rs 150 (net contribution by the bakers) = Rs 250. The term that is used to denote the net contribution made by a firm is called its value added.” Glossary: “Value added – Net contribution made by a firm in the process of production. It is defined as, Value of production – Value of intermediate goods used.” |