Describe What Is Profit
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).
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…
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.
The term profit has been differently defined by economists as under “Profit is the difference between the revenue generated from the sale of output and the full opportunity costs of factors used in the production of that output.
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).
In a free enterprise economy to which the price system primarily relates, the factors of production are privately owned.
A mixed economy solves the problem of what to produce and in what quantities in two ways.
The price mechanism has little relevance in a socialist economy as it is regarded as a distinguishing feature of a free market economy. In a socialist economy the various elements of the price mechanism costs, prices and profits- are all planned and calculated by the planning authority in accordance with the targets of the plan.
The price mechanism works through supply and demand of goods and services in competitive markets. In turn, prices are determined.
In every society there are legal and social institutions. Individual economic actions must conform to them. In a free enterprise economy to which the price system primarily relates, the factors of production are privately owned. The raw materials, the machines, factories and farms are owned by individuals who are at liberty to dispose of them in accordance with the prevalent laws of the country.