Fixed Asset

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Definition of Fixed Assets:

Fixed assets are used in production and are expected to last at least one year. Common fixed assets include land, plant, and equipment.

Detailed Explanation:

Buildings, furniture, equipment, and land are examples of fixed assets. Use distinguishes a fixed asset from other assets. Fixed assets are not used for resale. Items for sale are inventory. For example, a retail store for computers has many computers. Those it sells to consumers are part of its inventory. Those used by its sales associates are fixed assets. Another distinction based on use is the difference between raw materials contained in a product and a fixed asset used to produce multiple products. Cotton is a raw material weaved into shirts. The loom is the fixed asset used to weave many shirts. When a company operates near capacity it is difficult to increase production because management may need to expand its fixed assets such as the plant and equipment to accommodate an increase in demand. At this point, the manufacturer’s price elasticity of supply would be inelastic.  

Dig Deeper With These Free Lessons:

Price Elasticity of Supply – How Does a Producer Respond To a Price Change
Supply – The Producer's Perspective
Factors of Production – The Required Inputs of Every Business
Output and Profit Maximization

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