Final answer:
Ceasing investment in fixed assets would lead to a decline in a company's production capacity and efficiency, higher average costs due to lack of economies of scale, and potentially stifle innovation.
Step-by-step explanation:
If a company stopped all investment in fixed assets, it would eventually face a decline in its productive capacity and efficiency. Fixed assets, such as machinery, buildings, and equipment, are crucial for maintaining and expanding a company's operations. Over time, these assets require maintenance, upgrades, or replacement to ensure competitive production capabilities. Without investment in fixed assets, the company could not take advantage of economies of scale, leading to higher average costs and potentially higher prices for consumers. Innovation may also be stifled, as there is a close link between investment in fixed assets and research and development activities.
Considering the shutdown point, a firm must decide whether to continue producing or shut down when experiencing losses. By stopping investment in fixed assets, the firm could lower short-run costs but at the expense of long-term viability, as fixed costs still need to be covered even if production stops. In the context of larger macroeconomic policies, such as those affecting budget deficits, a corporation's decision to cease investment in fixed assets could be influenced by anticipated shifts in the economic environment that might reduce the incentives for private sector capital investment.