Which of the following is a limiting factor for capacity expansion?

Company diversification is a significant limiting factor for capacity expansion. A diversified organization allocates its finite capital, management attention, and other resources across multiple, often unrelated, business units. This creates internal competition for funding. A proposal to expand capacity in one division must compete against investment opportunities in all other divisions. Therefore, the strategic choice to diversify inherently constrains the resources available for a major capacity expansion in any single area, as the firm's capital is not concentrated on one core business.

A. Government pressure to increase employment would typically be an incentive for, not a limitation on, capacity expansion, as expansion often creates jobs.
B. A production-oriented management focuses on economies of scale and efficiency, a mindset that generally favors and encourages capacity expansion to lower per-unit costs.
C. The lack of a credible market leader often represents a strategic opportunity for a company to expand and capture market share, rather than a factor limiting its ability to do so.

1. Montgomery, C. A. (1994). Corporate Diversification. Journal of Economic Perspectives, 8(3), 163-178. In discussing the management of diversified firms, the paper notes the challenge of allocating "scarce resources, such as top management talent and capital" across different business units (p. 164), which directly supports the concept of diversification limiting investment in any single area. DOI: https://doi.org/10.1257/jep.8.3.163

2. Goold, M., & Luchs, K. (1993). Why Diversify? Four Decades of Management Thinking. The Academy of Management Perspectives, 7(3), 7-25. This article reviews the logic of diversification, highlighting that a key role of the corporate center is to allocate capital among business units. This process of allocation inherently means that one unit's expansion plans are constrained by the needs of others.

3. MIT OpenCourseWare. (2014). 15.762 Supply Chain Planning, Lecture 3: Aggregate Planning. Massachusetts Institute of Technology. The lecture materials discuss capacity as a key decision in aggregate planning, which is fundamentally constrained by capital investment. In a diversified firm, the capital available for one supply chain's capacity is limited by the corporation's overall capital budgeting and allocation strategy across all its businesses.