The correct option is (c).
Explanation
Physical capital is one of the primary factors of production. It refers to the variety of tangible inputs required at every stage during the production process. It is structurally classified into two categories: Fixed Capital and Working Capital.
Statement-wise Analysis:
- Statement 1 is Correct: Physical capital is broadly defined as the variety of inputs required at every stage during production. This encompasses all man-made goods used to produce other goods and services.
- Statement 2 is Incorrect: Physical capital is not limited to fixed assets. It consists of two distinct parts:
- Fixed Capital: Tools, machines, and buildings that can be used in production over many years.
- Working Capital: Raw materials and money in hand. Therefore, raw materials are included in physical capital, not excluded.
- Statement 3 is Correct: Production requires money to make payments and buy necessary items during the process. Along with raw materials, money in hand is classified as working capital because it is used up or circulated during the production cycle, unlike fixed capital which remains durable.
Key Takeaway:
Physical Capital is the aggregate of Fixed Capital (durable assets like machinery) and Working Capital (transient inputs like raw materials and money in hand).