Determination of profits under perfect competition – Modern profit theory
Determination of profits under perfect competition – Modern profit theory
Selling Powers of Perfect Competition – Modern Profit Theory Profit is demanded like the reward of any other factor-service and the power of the product is determined by it. This theory explains the profit itself as the business corporation and profit as its net income. Profit as the reward of Fromm is affected by the demand and inventory of the pyramid.
(i) level of industrial development in the industry;
(ii) factor of prosperity in the industry;
(iii) scale of product, and (iv) marginal revenue system of the enterprise.
If the level of industrial progress is high then the scale of production is large and there is increase in studio and machinery. There is a growing trend in infrastructure and the demand for entrepreneurs in the industry increases. Similarly, if uncertainty element is high in the industry then the profit list is high and demand for the industry is also high, but out of all these factors the most important factor affecting the demand is the marginal revenue series of the enterprise.
In the case of land, labour or capital, the marginal revenue level accruing to a firm can be calculated from any single input. The theory of marginal revenue level has been stated before that a firm can demand the minimum unit of any input. This is impossible in the case of inputs because inputs are fixed and indivisible inputs. A firm can have only one secretariat. At the most, a firm can have more than one person who performs the functions of collective management and reliability etc. By this method costs can be reduced, production can be increased but the number of operators of a firm cannot be increased in any way. Again, there is no method which involves the measurement of the amount of inputs in time, or in physical units. Hence it is not possible to issue a marginal revenue account of an enterprise for a single firm.
But it is not difficult to calculate the marginal revenue productivity of entrepreneurship for an industry. The quantity of entrepreneurs changes with the change in the number of firms in an industry. Like the ordinary demand curve, the marginal revenue productivity curve of entrepreneurs is downward sloping. Therefore, it is the demand curve of entrepreneurs. As the number of entrepreneurs in an industry increases, the profit earned by each of them will decrease. This is also true because as the number of firms increases, production increases, prices fall, thereby reducing profits.
Supply of Entrepreneurs
The supply of entrepreneurs depends on several factors. These are:
(i) availability of capital;
(ii) availability of managerial and technical personnel;
(iii) size of population;
(iv) number of entrepreneurs;
(v) degree of uncertainty in the industry;
(vi) distribution of income;
(vii) the state of industrial society; and
(viii) the state of society.
Entrepreneurship is always attracted by the supply of capital because without it no business can be started. Other things being equal, the more capital is available, the greater will be the supply of entrepreneurs. Capital may be available in sufficient quantity but an entrepreneur has to depend mostly on managers and technical staff to run a business successfully. If trained managerial and technical staff is available, the supply of entrepreneurs will definitely increase. Population size is another factor which affects entrepreneurship. When the population size is large, the demand for various goods will also be high, which will attract more people towards entrepreneurship and the supply of entrepreneurs will increase. If the number of entrepreneurs in an industry is already large, the profits may be low and the supply of entrepreneurs for this particular industry may stagnate for some time. However, the supply of entrepreneurs may increase in the long run for the economy when the children and relatives of successful entrepreneurs take up entrepreneurship in the same industry or some other industry. This can be possible by gaining industrial experience through hereditary lineage or by working under experienced entrepreneurs. If the degree of uncertainty in the economy is very high, the expectations of profit will also be high and the supply of entrepreneurs will increase. On the contrary, if people are very cautious and afraid of uncertainty and risk, the supply of entrepreneurs will also be low due to low expectations of profit. If there is unequal distribution of income in the society, the supply of entrepreneurs will be high because the existing entrepreneurs are already earning very normal profits. On the other hand, if there is somewhat equal distribution of income, entrepreneurs will not be earning high profits and their supply will not increase. The most important and final factor affecting the supply of entrepreneurs is the condition of the society in which all the factors mentioned above are found. Apart from this, it also includes political stability, economic conditions and legal framework in the society.
Political stability is essential for the increasing supply of entrepreneurs. In the economic field, sharp economic fluctuations damage business expectations and confidence, which adversely affects the supply of entrepreneurs. Similarly, stringent regulations on business houses, high company taxes, etc., restrict the supply of entrepreneurs, while supportive policies like low and low taxes, credit facilities, etc., encourage the supply of entrepreneurs. The factors discussed above lead to the conclusion that the supply of entrepreneurs increases when profits are high and decreases when profits are low. Thus, the supply curve of entrepreneurship will have a positive upward slope from left to right, as shown in the SE curve in Figure 1.
