A farmer produces cotton in his farm and sells it to the yarn making firm at Rs 2500. The yarn making firm sells this yarn to the cloth mill for Rs 4000, who make cloth from it and this cloth is sold to a readymade garments factory for Rs 6500. The ready made garments factory sells the garments to the retailer for Rs 9000 and makes a profit of Rs 2000. Assuming that the farmer does not incur any intermediate cost, what will be total value added in the above process?

Rs 9000

The correct answer is Option (2) → Rs 9000

Given data:

1. Farmer → Yarn firm: sells cotton for ₹2500

2. Yarn firm → Cloth mill: sells yarn for ₹4000

3. Cloth mill → Garment factory: sells cloth for ₹6500

4. Garment factory → Retailer: sells garments for ₹9000 and makes a profit of ₹2000 

Step 1: Calculate value added by each stage

(i) Farmer:

• No intermediate cost

• Value added = ₹2500

(ii) Yarn making firm:

• Output = ₹4000

• Intermediate input (cotton) = ₹2500

• Value added = 4000 − 2500 = ₹1500

(iii) Cloth mill:

• Output = ₹6500

• Intermediate input (yarn) = ₹4000

• Value added = 6500 − 4000 = ₹2500

(iv) Garment factory:

• Output = ₹9000

• Intermediate input (cloth) = ₹6500

• Value added = 9000 − 6500 = ₹2500

Step 2: Add all value added : 2500+1500+2500+2500=9000

The total value added is equal to the value of the final goods sold, which is the price of the garments sold to the retailer (Rs 9000).