Final answer:
Service businesses incur additional operating expenses such as administrative costs, which encompass employee wages, account management, and claim processing for the insurance industry.
Step-by-step explanation:
Service businesses incur a range of additional operating expenses, which are largely composed of the costs of running the business itself.
These include administrative costs such as hiring workers, account management, and processing tasks specific to the nature of the service provided.
For instance, with insurance companies, significant operating expenses beyond claim payments include hiring workers for administrative duties, managing policyholder accounts, and processing insurance claims.
These essential activities ensure the functionality and the reliability of the service.
Moreover, while some service businesses, like those that offer seasonal work (e.g., leaf raking or snow shoveling), might have low fixed costs, requiring minimal equipment and a vehicle for transport, others might face high marginal costs due to factors like equipment maintenance.
For example, manufacturing plants operating continuously might experience diminishing marginal returns due to the need for frequent repairs and equipment replacement, which in turn raises their operating costs significantly.