Question

How do 'Choice of Technique' and 'Nature of Business' affects the 'Fixed Captial' requirements of a company?

Explain.

Answer 1

• Choice of Technique :
  

Companies using capital-intensive techniques require more fixed capital whereas companies using labour-intensive techniques require less capital because capital-intensive techniques make use of plant and machinery and company needs more fixed capital to buy plants and machinery.

• Nature of Business
  

The type of business Co. is involved in is the first factor which helps in deciding the requirement of fixed capital. A manufacturing company needs more fixed capital as compared to a trading company, as trading company does not need plant, machinery, etc.