ABC should increase weekly processing capacity above 100 tonnes only if which conditions are strong enough to justify the investment?

• A. Demand growth, e-waste supply, and profitability must all be strong enough to justify the investment.
• B. Increasing capacity will always be profitable regardless of market conditions.
• C. Demand alone is sufficient to justify the investment.
• D. E-waste supply alone justifies the investment.

Answer: (C)

The key idea is that expanding capacity is justified mainly by a solid, forecasted increase in demand. If weekly demand is expected to grow beyond 100 tonnes, ABC can invest in more capacity to meet that demand. With higher demand, the extra capacity can be utilized, allowing the firm to sell more and spread fixed costs over a larger volume, which improves the potential return on the investment.

Other factors like how much e-waste is available or whether profitability is currently strong matter for risk and planning, but they don’t determine whether the project should go ahead on their own. If there isn’t demand to absorb the extra capacity, the investment risks becoming idle and unprofitable, even if supply looks good or current profitability seems favorable. Conversely, a strong demand forecast makes the expansion sensible, even if other factors are not yet perfect, because it provides the market trigger for the investment.