Capital and Labour Intensity Business

capital intensive technique refers to

By using EBITDA, rather than net income, it is easier to compare the performance of companies in the same industry. Examples of capital-intensive industries include automobile manufacturing, oil production, and refining, steel production, telecommunications, and transportation sectors (e.g., railways and airlines). These processes are more likely to be highly automated and to be used to produce on a large
scale. An industry that is capital intensive is – oil refining, manufacturing. These businesses or companies suffer misfortunes or losses at first yet over the long run, these companies or businesses acquire higher profits.

capital intensive technique refers to

The examples of capital-intensive industries incorporate a Car Company, Gas and Oil production, Real Estate, Manufacturing Firms, Metals, Mining, etc. There is a great controversy on the question of choosing between labour intensive and capital intensive technique in less developed countries. Some are in favour of labour-intensive technique, others advocate for the capital-intensive technique. Before formulating any decisive opinion on the important question, let us study the arguments for and against each of these techniques. In an economy, to initiate any production process, resources or inputs are required.

Capital-intensive industry

Business is my passion and i have established myself in capital intensive technique refers to multiple industries with a focus on sustainable growth.

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Good examples of capital intensive
industries include the oil refining industry, telecommunications industry, airline industry, and
public transport authorities that maintain the roads, railways, trains, trams, etc. Capital-intensive organizations have high levels of operating flexibility, which is a combination of fixed costs and variable costs. This ensures that small revenue changes will lead to major profit changes and its return on investment. Compared to labor-intensive sectors, capital intensive industries are more susceptible because of high operating leverage. Also, even in an economic slowdown, capital intensive businesses have to pay the fixed costs on machinery and capital used.

The choice of technology, economic efficiency and employment in developing countries

Increased use of capital in industries can cause jobless because they no longer needed human capital. However, more capital intensive industries create other varieties of jobs in designing software or managing the machine. Also, capital-intensive production can lead to lower prices as the use of high-level machinery or equipment reduce the cost of production by minimum wastage of resources. Capital intensive can be measured by the fixed asset to sales ratio that helps us to measure whether the organization is high capital intensive based or low capital intensive based. In this diagram isoquant Q represents the initial .level of output, using OL amount of labour and OC amount of capital. With the introduction of new technique a higher level of output is shown by labour (OL) but with greater dose of capital (OC1).

  • Labor intensive is where most of the production is carried by workers or employees.
  • The oil production, steel production, automobile industry, transports, and telecom sectors are examples of capital-intensive industries.
  • However, Solow’s calculations have been proven invalid, so this is a poor explanation.
  • In case you are a utility service provider who wants to set up a plant for offering electricity, then for this, you will be required to build either wind, coal, or nuclear power stations.
  • It means that the levels of output would be at a much smaller scale than a labor intensive industry.
  • The efficient and accurate amalgamation of these resources leads to the desired level of output.

The early textile mills had required relatively small amounts of capital in comparison to the new ironworks and steelworks. Capital intensive industry replaced labor-intensive production, which relied on the hiring of more workers. The distribution and consumption of goods failed to keep pace with industrial growth.

What Is Capital Intensive?

Therefore, capital intensive technique is using more capital with the same amount of labour. Prof. Harvey Leibenstein, Paul Baran, Rostow, Hirschamn Maurice Dobb and Mahalanobis are the chief advocators of capital intensive technique. They consider that this technique is indispensable for accelerating the process of growth.

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Frequently the specialization takes place because nations were quick to produce and profited from their capital intensity. The relatively importance of labour and capital to a specific business can be described broadly in terms of their « intensity » (or to put it another way, significance). The Austrian School maintains that the capital intensity of any industry is due to the roundaboutness of the particular industry and consumer demand.

Pros and Cons of Capital Intensive Technology

Capital intensive production requires more machinery, equipment and sophisticated technological production systems in the production process. Capital intensive production requires a higher level of investment and larger amount of funds and financial resources. A capital intensive production process is mostly automated and able to generate a large output of goods and services. Since capital intensive production relies largely on machinery and equipment, such industries require long term investment, with a high cost involved in maintaining and depreciating equipment. In such a capital intensive production process, it could be very costly to increase output levels as this would require higher investment in such machinery and equipment.

Is airline a capital intensive industry?

Airlines are a capital-intensive industry, needing to purchase and maintain expensive aircraft and pay for the fuel to make them go.

What is capital intensive vs extensive?

Extensive growth in its pure form is based on quantitative increases in labour, capital and land, whereas intensive growth is derived from gains in overall productivity, i.e. increasing efficiency of labour and a better utilization of capital and other means of production.

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