Physical capital

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In economics, physical capital or just capital is a factor of production (or input into the process of production), consisting of machinery, buildings, computers, and the like. The production function takes the general form Y=f(K, L, N), where Y is the amount of output produced, K is the amount of capital stock used, L is the amount of labor used, and N is the amount of natural resources used. In economic theory, physical capital is one of the three primary factors of production; the others are natural resources (including land), and labor the stock of competences embodied in the labor force. Physical capital is distinct from human capital (a result of investment in the human agent), circulating capital, and financial capital. [1] [2] Physical capital is fixed capital, which is any kind of real physical asset that is not used up in the production of a product. Usually the value of land is not included in physical capital as it is not a reproducible product of human activities.

Economics Social science that analyzes the production, distribution, and consumption of goods and services

Economics is the social science that studies the production, distribution, and consumption of goods and services.

In economics, capital consists of an asset that can enhance one's power to perform economically useful work. For example, in a fundamental sense a stone or an arrow is capital for a caveman who can use it as a hunting instrument, while roads are capital for inhabitants of a city.

Production function physical output of a production process to physical inputs or factors of production

In economics, a production function gives the technological relation between quantities of physical inputs and quantities of output of goods. The production function is one of the key concepts of mainstream neoclassical theories, used to define marginal product and to distinguish allocative efficiency, a key focus of economics. One important purpose of the production function is to address allocative efficiency in the use of factor inputs in production and the resulting distribution of income to those factors, while abstracting away from the technological problems of achieving technical efficiency, as an engineer or professional manager might understand it.

See also


  1. Paul A. Samuelson and William D. Nordhaus (2004). Economics , 18th ed., Glossary of Terms"Factors of production," "Capital," "Human capital," and "Land."
  2. Deardorff's Glossary of International Economics, Physical capital.

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