Profit Homework Help, Assignment Help, Online Tutor, Tutoring

Submit Assignment

* *

Payment Online Assignment Help

Business Economics Homework

Homework Help

sfsf

Profit

To start with, let us state the difference between interest and profits as factor costs. Interest is risk premium, a payment towards hedging calculable risk, whereas profit is a residual earning to the entrepreneur for shouldering non-calculable risks.

Economic literature is full of number of theories and models explaining profit, some of those concepts and precepts are relevant for analyzing profit as a business income.

The classical economists took profit (clubbed with rent and interest) as ‘unearned income’ derived from ‘property’ owned rather than ‘labour’ put in for earned income. Marx treated this unearned income profit as a ‘surplus value’. The non-classical economists tried hard to organize for his ability to organize, surprise and control business operations. Marshall termed this ability as “productivity” and stated that profit equals marginal productivity’ of an entrepreneur. In later years, the concept of ‘marginal productivity of an entrepreneur was further refined and defined. J.B. Clark, for example, suggested that profit as entrepreneurial compensation arises, in an economy full of changes in population, taste and preference, resources and techniques and business organization. It is because of these charges, profit emerges as a ‘dynamic surplus”. Schumpeter emphasized dynamism with reference to technology and techniques. Unless there is “innovation”. Profit cannot grow profit ship from one hand to the other due to “limitation”. Harvey pointed out; dynamic changes per se do not cause profit. Much depends on the demand of risks associated with those changes. Thus profit is a profit is a compensation “risk bearing”. Frank knight made a distinction between calculable “risk” and non-calculable risks; interest is an “uncertainty”. He suggested that for ledging calculable risks, interest is a necessary premium, but for facing uncertainty, profit in the incentive Keirstead suggested that uncertainty, profit in the incentive. Keirstead suggested that uncertainty activates “expectation”. There are two types of expectations-static and dynamic. To expect other than what one observes is ‘dynamic’ expectations which entitles an entrepreneur to earn profit or suffer losses. Kalacki related profits to the “degree of monopoly”. Larger the degree of monopoly (measured though the different price and marginal variable costs); higher is the share of profits to national income in terms of investment rate and propensity to save. His basis observation was: "Profit rate is a function of investment rate, given the propensity to save of the profit earner and wages earner".