Future Business Leaders of America (FBLA) Agribusiness Practice Test

What does 'capital intensive' mean?

1. Having a high labor cost per unit of output

2. Requiring more capital than labor to produce goods

3. Involving technology enhancements in production

4. Using financial capital exclusively for operational expenses

The correct answer is: Requiring more capital than labor to produce goods

The term 'capital intensive' refers to a production process or business model that requires a significant amount of capital investment relative to the amount of labor used. This means that in capital-intensive industries, companies invest heavily in machinery, equipment, and technology, allowing them to produce goods more efficiently compared to labor-intensive methods, where more human effort is needed. In industries considered capital-intensive, such as manufacturing or utilities, the ratio of capital to labor is high, meaning that the total expenditure on physical assets significantly outweighs that spent on wages and salaries for workers. This can lead to higher production efficiency and lower variable costs per unit produced, as the machinery can operate continuously once it is set up. Other options, while they may represent attributes of various business models, do not accurately define the essence of what 'capital intensive' entails. They either misplace the emphasis on labor costs, suggest a focus solely on operational expenses, or hint at technological enhancements without addressing the core principle regarding the balance of capital and labor in production.