Question

‘Radhe Textiles’, a children’s garment manufacturing business, and Ghanshyam Garments, a home furnishing manufacturing business operate in the same industrial area. Both companies jointly set up a common dyeing and finishing plant. This was because the scale of operations of each of them was not sufficient to make full use of the plant. With both of them jointly using the plant, the requirement of fixed capital for each company will now be :

• A. Higher than earlier
• B. Lower than earlier
• C. Same as earlier
• D. Nil

Hint:

When two firms share one costly plant, each needs to invest less in fixed assets of its own, so the requirement falls.

Answer 1

The Correct Option is B

Step 1: Understand the situation:
Two companies set up one common dyeing and finishing plant. Each had too small a scale to use a full plant alone.
They now share the plant. The question asks how this changes the fixed capital each one needs.
This links to the factor called level of collaboration.

Step 2: Apply the concept:
Fixed capital is the money spent on long-term assets such as plants.
When two firms share a plant, each pays only part of its cost and each needs fewer assets of its own.
So the fixed capital needed by each firm falls. Option (B) Lower than earlier is correct.

Step 3: Check option (A) Higher than earlier:
Sharing makes each firm spend less on its own assets, so the requirement does not rise. (A) is wrong.

Step 4: Check options (C) and (D):
(C) Same as earlier: sharing a plant spreads the cost, so the figure must change. It does not stay the same.
(D) Nil: each firm still has to contribute to the common plant and has its own other assets. So the need is not zero.
Both are wrong.

Final Answer:
With the plant shared, the fixed capital need of each company is lower than earlier, option (B).