2. PROFIT=TOTAL REVENUE-TOTAL COST
DEFINITION
Classical economists have regarded profit maximization as the sole objective of the business in any capitalist economy.
Ordinary language - profit is all about excess of income over costs of production.
PROFIT=TR-TC
PROFIT=TOTAL REVENUE-TOTAL COST

6. GROSS PROFIT VS NET PROFIT
Gross profit is surplus of total money expenditure incurred by a firm after the production process
Net Profit is pure economic profit earned by entrepreneur for his services &efficiency.
Net Profit= Gross Profit-(payment for using
entrepreneur’s own
land, labour& capital)

7. ELEMENTS REWARD FOR BEARING RISKS. REWARD FOR INNOVATION
MONOPOLY POWER
PRODUCT DIFFERENTIATION
WINDFALL PROFIT/GAIN

9. INNOVATION
Invention innovation

10. MONOPOLY POWER Single seller Large number of buyers.
No close substitute
High price

11. PRODUCT DIFFERENTIATION

12. Windfall gain
Occurrence of some
Unexpected events.

13. PROFIT & OTHER FACTOR INCOME
1. Non-Contractual vs. Contractual Income:
2. Residual vs. Non-Residual Income:
3. Nature of Profits and of Other Incomes:
Profit can be zero when there is neither a gain nor a loss; sometimes it can be even negative when there is a loss in business. But other incomes are always positive.
4. Role of Risk:
5. Fluctuating Nature of Profits:

14. Hawley’s Risk Theory Of Profit
“The riskier the industry the higher its profit rate”
Since entrepreneur take the risks of business, he is entitled to receive profit as his rewards.
Profit is commensurate with risk.

15. Criticisms
There are no functional relationship between risk and profit.
•Profit is not based on entrepreneur's ability to undertake risks, but rather as his capability of risk avoidance.
•The theory disregards many other factors attributable to profit and just concentrate on risks

16. UNCERTAINTY BEARING THEORY
According To Hawley Profit Is The Reward For Bearing Risk.
The Concluding Point Of Hawley’s Theory Is The Starting Point Of Knight,s Theory.
Knight Classified Risk As
INSURABLE
NON-INSURABLE

17. PRODUCTION DISTRIBUTION TIME LAG
According To Him Profit Is The Reward For Taking Non Insurable Risk (Uncertainty).
PRODUCTION DISTRIBUTION
TIME LAG
Causes Change In Economic Variables
Some Part May Remain Unsold

18. DIFFERENT TYPES OF UNCERTAINTIES
MARKET BEHAVIOUR
TECHNOLOGICAL CHANGE
CHANGE IN COMPETETIVE FIRM’S BEHAVIOUR
CHANGE IN GOVERNMRNT POLICY
TRADE CYCLE

19. QUESTIONS
Differentiate Between Normal And Super Normal Profit, Gross And Net Profit.
Profit And Other Incomes
Describe The Elements Of Gross Profit /Net Profit.
Insurable & Non Insurable Risk
Invention & Innovation
Windfall Gain