The Meaning of Capital

Capital, which is one of the factors of production, is a stock of previous wealth invested in order to obtain future wealth. Capital can also be defined as manufactured resources, which are produced to help the production of other goods and services. It can also be defined as any form of wealth set aside for the production of further wealth. Capital may be tools or equipment that makes the production of goods and services possible. Examples of Capital include raw materials, buildings, equipment, tools, machineries, funds and so on. The reward for Capital is interest
Characteristics of Capital
1. Capital could either be in physical or liquid form
2. The physical capital includes tangible or fixed assets such as motor vehicles, buildings, machineries, etc.
3. Capital is highly durable
4. Capital is man-made factors of production
5. Capital is subject to depreciation
6. Capital helps large-scale production and division of labor
Importance of Capital
The Contribution of capital to the productive process centers around the facilitation of mass production such as when machineries are used, the simplification of complex tasks such as the ones done with the use of computers, the enhancement of quality production and the likes
Types of Capital
1. Fixed Capital: These tangible and durable assets can last for a very long time and are required in the production process. Examples include Plants and Machineries, Motor Vehicles, Furniture’s, Fixtures and fittings, Land and Building, etc.
2. Working or Circulating Capital: This types of capital includes cash in hand that can easily be converted into final goods, raw materials
3. Current Capital: This is a kind of capital is required for the day-to-day running of a firm or productive activities
4. Real or Social Capital: This type of capital comprises all the social amenities such as road, water, electricity provided by the Government, which helps production of goods and services

Efficiency of Capital: Capital efficiency has to do with the possibility of capital to lead to higher output than it would have been possible without the availability of such capital
Marginal efficiency of Capital: This refers to the rate of return on the cost of unit of capital invested in the production process. It shows the increase in output because of the last unit of capital invested
Importance of the Marginal Efficiency of Capital
1. It provides direction to production in terms of employment of more capital
2. It makes it possible for a rational decision t be taken on capital accumulation

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