Business – 4.1 The nature of operations – Capital and labour intensive operations | e-Consult
4.1 The nature of operations – Capital and labour intensive operations (1 questions)
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Limitations include:
- High fixed costs – Large initial outlays and ongoing depreciation mean the firm must maintain high sales volumes to cover costs; a downturn can quickly threaten profitability.
- Reduced flexibility – Heavy investment in specialised equipment makes it difficult to adapt quickly to changes in market demand or to switch to new product lines.
- Financial risk – Funding large capital projects often requires borrowing, increasing interest obligations and exposing the firm to interest‑rate fluctuations and credit risk.