Physical capital refers to the tangible assets that a business uses to produce goods and services. This includes machinery, buildings, tools, and equipment. These items are essential for increasing productivity and efficiency in the production process, allowing companies to create more output with the same amount of labor. Investing in physical capital is crucial for economic growth. When businesses upgrade their machinery or expand their facilities, they can improve their operations and potentially lower costs. This investment not only benefits the company but can also lead to job creation and increased economic activity in the surrounding community.