A positive level of net investment
implies a rise in the firm's capital stock and long run expansion in the size
of a business.
The reasons for undertaking an
investment project are varied. Here are five main reasons.
To take advantage of higher expected
profits from expanding output and meeting a rise in consumer demand
To generate a rise in productive
To improve efficiency through
technological progress and innovation
To exploit economies of scale and
thereby bring down long-run average total cost
As a barrier to entry - extra capacity can force
out potential competitors in a market, protect the monopoly power of existing
firms and thereby increase supernormal profits in the long run
The UK economy sets to benefit from a
higher level of fixed capital investment. It should promote long run economic growth and boost the international competitiveness of domestic
producer in home and overseas markets.