A garment unit replaces most of its hand-operated work with automatic machines. What is the likely effect on its fixed capital requirement, and why?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Higher, because it will rely less on manual labour and need more plant and machinery
Option (1) Lower, because it will need fewer workers on its rolls — Incorrect. Fewer workers is only a side effect of the change. Fixed capital is money put into fixed assets such as machines, and the unit now needs more machines, so its fixed capital rises.
Option (2) Higher, because it will now operate at a higher scale and need more space — Incorrect. Scale of operations is the size of the business. The unit has changed the way it works, while nothing is said about a larger output or more space.
Option (3) Higher, because it will rely less on manual labour and need more plant and machinery — Correct. This is the factor choice of technique. A capital-intensive unit relies less on manual labour, so it needs more investment in plant and machinery. Its fixed capital requirement is higher.
Option (4) Lower, because it can share its new machines with another unit — Incorrect. Sharing facilities with another firm is level of collaboration. It lowers the investment in fixed assets of each firm. The case says nothing about sharing; it only says the unit has moved to machines.
NCERT (2026-27 Edition): “3. Choice of Technique: Some organisations are capital intensive whereas others are labour intensive. A capital-intensive organisation requires higher investment in plant and machinery as it relies less on manual labour. The requirement of fixed capital for such organisations would be higher. Labour intensive organisations on the other hand require less investment in fixed assets. Hence, their fixed capital requirement is lower.” “8. Level of Collaboration: At times, certain business organisations share each other’s facilities. For example, a bank may use another’s ATM or some of them may jointly establish a particular facility. This is feasible if the scale of operations of each one of them is not sufficient to make full use of the facility. Such collaboration reduces the level of investment in fixed assets for each one of the participating organisations.” |