Fixed Capital

Published Oct 25, 2023

Definition of Fixed Capital

Fixed capital refers to the tangible assets that are used in the production process and are not consumed in the short term. These assets are essential for a business to operate and include items such as buildings, machinery, equipment, vehicles, and infrastructure.

Example

To understand fixed capital, let’s take the example of a manufacturing company. The company requires a factory building, specialized machinery, and equipment to produce its products. These assets are considered fixed capital because they are not quickly consumed or depleted in the production process. The factory building provides the necessary space for manufacturing activities, while the machinery and equipment are used to transform raw materials into finished goods.

Without fixed capital, the manufacturing company would not be able to produce goods efficiently and effectively. The factory building provides a dedicated space for production, ensuring that operations are organized and optimized. The specialized machinery and equipment enable automated and precise manufacturing processes, increasing productivity and quality.

Why Fixed Capital Matters

Fixed capital is crucial for businesses as it allows them to carry out their operations and generate revenue. The availability and quality of fixed capital directly impact a company’s productivity, efficiency, and competitiveness. Investing in fixed capital can lead to cost savings, improved product quality, and increased production capacity.

Additionally, fixed capital also has a long-term impact on the economy. Infrastructure projects, such as roads, bridges, and power plants, are examples of fixed capital that contribute to economic growth by enabling transportation, trade, and energy production. These investments in fixed capital create jobs, attract investment, and support overall development.