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Definition: Buildings and equipment that
are needed to produce consumer
goods and services
The capital formation is basically the
equipment that is needed to make the
consumer products. Examples: A book
publisher would need a special book printer
to print the books. A Pizza Hut needs ovens
to create their pizza. Game designers need
special development computers to design
their games. The cost of the equipment to
make or design the finished product will
contribute to the final price of the product.
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Price of Consumer Product = Labor(Time) + Raw Material +
Capital Formation
Price of Consumer Product- The final price of what the
consumer will pay
Labor- How much the company had to pay their staff
Time- Time consumed making the individual unit by the staff
Raw Material- The cost of the resources needed to create the
finished product
Capital Formation- The cost of the equipment and space
needed for the production