Profit is the fourth component of factor pricing. In simple words, it is the amount left with the entrepreneur after he has made all other payments to land (rent); labour (wages) and capitalist (interest).
Dynamic Theory of Profits.
Innovation Theory of Profits
Risk Bearing Theory of Profits.
Uncertainty Bearing Theory of Profits.
Marginal Productivity Theory of Profits.
Theory of Monopoly Profits.
In order to determine profit, the economists from time to time propounded many theories of profit. But till now, there is no theory which is easily acceptable to all. This ambiguity is due to the following reasons.
Profits are the payments made for the services of the entrepreneur. Rewards given to the factors for their services viz, wages, interest etc. arc included in the price of the commodity by a firm. Now, the question that creeps in mind is that if profit is a part of the cost of production then it enters into price or not. In order to answer this question
Difference between Normal Profit and Abnormal Profit
Normal profit refers to the minimum profit expected by the owner of a firm in the long period. In other words, normal profit is the normal rate of profit that must exist in order to attract men of adequate business calibre to any industry. According to Stonier and Haquc, Normal profits are those which are just sufficient to induce an entrepreneur to stay in business.
Difference between Gross Profit and Net Profit The difference between gross profit and net profit is based on certain arguments which are given below…
Pure Profit Gross Profit Implicit Cost…….
Depreciation charges refer to those expenses which are incurred on repair and replacement of machinery and plant, which are included in the gross profit.
Gross Profit refers to that part of the income of a businessman which is available to him after all payments to the contractually hired factors and other current obligations like taxes and depreciation charges. In other words, the difference between total revenue of an Entrepreneur and total explicit costs is called the gross profit.
Before analysing the concept of profit, it becomes legitimate to understand two different senses in which the term profit is commonly used viz;
Prof. Taussig, in the late 19th century remarked that “Profit is a mixed and vexed income. lt 1s mixed in the sense that it is made up of a number of sources and vexed because there exists a lot of difference regarding the definition, constituents and determinants of profit. The classical economists regarded profit as the reward of capitalists who supplied capital and owned the busines
The income of other factors of production like rent, wages, interest etc. is decided before putting them in operation. Thus, the income earned from these factors is called contract income. But in the case of profits it is not so. Whatever remains is called profit. Therefore, it is termed as residual income.