Two firms with identical capital intensity ratios are generating the same amount of sales.However, Firm A is operating at full capacity, while Firm B is operating below capacity.If the two firms expect the same growth in sales during the next period, then Firm A is likely to need more additional funds than Firm B, other things held constant.

Question

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Since Firm A is already operating at full capacity, any increase in sales would require additional funds for expansion of capacity or hiring more employees, while Firm B can increase its sales without needing additional funds to expand its capacity or hire new employees. Therefore, Firm A is likely to need more additional funds than firm B, other things held constant.

Two Firms with Identical Capital Intensity Ratios Are Generating the Same