Ms Pooja has a manufacturing business of winter clothes in Raipur, Chhattisgarh with an annual demand of 50,000 units. Suggest the factors that she needs to consider while deciding on the requirement of fixed capital for the business.
(A) Scale of operations
(B) Choice of Technique
(C) Growth Prospects
(D) Business Cycle
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
(A) Scale of operations — Correct. Fixed capital is money put into long-term assets such as land, buildings and machines. A larger unit, such as one meeting a demand of 50,000 units a year, needs a bigger factory and more machines.
(B) Choice of Technique — Correct. A machine-based (capital-intensive) technique needs more fixed capital than a labour-intensive one.
(C) Growth Prospects — Correct. A business expecting to grow builds more capacity in advance, so it needs more fixed capital.
(D) Business Cycle — Incorrect. The business cycle, boom and depression, is a factor affecting working capital, the money needed for day-to-day operations. A factory is not bought or sold with every boom and slump.
NCERT (2026-27 Edition): “Factors affecting the Requirement of Fixed Capital … 2. Scale of Operations: A larger organisation operating at a higher scale needs bigger plant, more space etc. and therefore, requires higher investment in fixed assets when compared with the small organisation.” “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. …” “5. Growth Prospects: Higher growth of an organisation generally requires higher investment in fixed assets. …” “3. Business Cycle: Different phases of business cycles affect the requirement of working capital by a firm. …” |