Question

Explain what you understand by physical capital.

Answer 1

Physical capital includes all those inputs which are required for further production, like plant and machinery, factory, raw materials, etc. Physical capital is needed to make use of physical resources. Its accumulation is crucial for economic growth. The process of physical capital formation is an economic and technical process.

The ownership of physical capital is the outcome of the conscious decision of the owner. The entrepreneur possesses the knowledge to calculate the expected rates of return to a range of investments and then rationally decides which of the investments should be made.