Profit Theory of Bearing Uncertainty Professor Frank H. Knight considers profit as the reward for bearing those risks and uncertainties which cannot be insured. He distinguishes between insurable and uninsurable risks. Some risks can be measured to the extent that their occurrence can be calculated statistically. Risks like fire, theft of goods and death due … Read more
Profit Theory – Risk The risk theory of profit is associated with the name of F.B. Holley, who considers risk taking to be the main function of the entrepreneur. Profit is the residual income that the entrepreneur receives when he takes a risk. The entrepreneur puts his business at risk and in return receives a … Read more
Gross Profit and Net Profit Profit is the difference between the total revenue and total cost of a commercial and industrial concern. In this regard it is important to note that the term total cost includes all expenses incurred in an concern during a given period. These expenses include cost of raw materials, cost of … Read more
Schumpeter’s Innovation Profit Theory Professor Schumpeter considers that profits arise from dynamic changes resulting from innovation. To begin with, he takes a capitalist closed economy in static equilibrium. A ‘circular flow’ that repeats itself forever characterises this equilibrium. Such a static state is a perfectly competitive equilibrium. In it, the price of each commodity is … Read more
Major theories of profit = Dynamic Theory In 1900, Professor J.B. Clarke propounded the dynamic #1900 theory of profit. According to him, the difference between the price of the commodity and the cost of production is profit, but profit arises as a result of dynamic change. In the dynamic state, “five general changes keep taking … Read more
Meaning and Definition of Profit The main objective of every commercial and industrial establishment is to earn profit. Aiming at earning profit by all business activities is a measure of the success and progress of a commercial and industrial establishment. Profit is the reward for the labour of the entrepreneur. It is a form of … Read more
Basic Concepts of Managerial Economics The future is always uncertain. Management takes many decisions and prepares plans for the future with a realistic understanding. In this, management is helped by some basic concepts and techniques in taking the right decisions. These concepts are as follows- (1) Principle of Opportunity Cost- Opportunity cost means the cost … Read more
Scope of Managerial Economics The scope of managerial economics is narrower than economic theory because economics is related to both micro and macro economics whereas the scope of managerial economics is limited to micro analysis. However, it is closely related to operation research like mathematics and decision making theory. There are various functional areas of … Read more
Relationship between Management Economics and Other Subjects (i) Management Economics and Operations Research- Management Economics and Operations Research both are related to effective decision making. Both are related to the best way of achieving goals. After the Second World War, many researches were done to solve the complex problems of planning and allocation of resources. … Read more