Which of the following firms needs higher fixed capital mainly because of technology upgradation?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → A firm whose computers become obsolete fast and must be replaced much sooner than its furniture
Option (1) A firm whose computers become obsolete fast and must be replaced much sooner than its furniture — Correct. This is the factor technology upgradation. In some industries, assets become obsolete sooner, so they must be replaced faster. A firm using such assets, like computers, needs higher fixed capital to buy the replacements.
Option (2) A textile company that has started a cement manufacturing plant — Incorrect. Starting a new line of business is diversification. Its fixed capital rises because of the new plant it sets up, while its old assets need not be outdated.
Option (3) A manufacturing firm that, unlike a trading concern, has to buy plant and machinery — Incorrect. This is the factor nature of business. A manufacturing firm must buy plant and machinery, while a trading concern does not. So the reason here is the type of business.
Option (4) A bank that has set up a facility jointly with some other banks — Incorrect. Setting up a facility jointly is level of collaboration. It reduces the investment in fixed assets of each bank taking part.
NCERT (2026-27 Edition): “4. Technology Upgradation: In certain industries, assets become obsolete sooner. Consequently, their replacements become due faster. Higher investment in fixed assets may, therefore, be required in such cases. For example, computers become obsolete faster and are replaced much sooner than say, furniture. Thus, such organisations which use assets which are prone to obsolescence require higher fixed capital to purchase such assets.” “6. Diversification: A firm may choose to diversify its operations for various reasons, With diversification, fixed capital requirements increase e.g., a textile company is diversifying and starting a cement manufacturing plant. Obviously, its investment in fixed capital will increase.” |