UNCERTAINTY BEARING THEORY OF PROFIT

• UNCERTAINTY BEARING THEORY OF PROFIT
• MICRO ECONOMICS/BUSINESS ECONOMICS 2
• SHASHI AGGARWAL ECONOMICS AND LAW CLASSES
• UNCERTAINTY BEARING THEORY OF PROFIT

1. GIVEN BY PROF FRANK H. KNIGHT
2. PROFIT IS THE REWARD FOR BEARING UN INSURABLE FUTURE UNCERTAINTY
3. PROFIT IS NOT THE REWARD FOR MANAGING AND COORDINATING THE BUSINESS.
4. IT IS THE REWARD EXCLUSIVELY FOR UNCERTAINTY BEARING IT.

• TYPES OF RISK

1. CERTAIN RISKS: WHICH CAN BE FORESEEN AND INSURABLE. IT MAY BE RISK DUE TO FIRE,EARTHQUAKE, OTHER NATURAL CALAMITIES.
2. UNCERTAIN RISKS:-WHICH CAN NOT BE FORESEEN. THESE GIVE RISE TO UNCERTAINTIES.

• UNCERTAIN RISK

1. UNCERTAINTIES IN MARKET:-
2. COMPETITIVE UNCERTAINTY
3. GOVT INTERFERENCE
4. TECHNOLOGICAL INNOVATION:
5. BUSINESS CYCLES:

• MAIN FEATURES

1. UNCERTAINTY AS THE BASE OF PROFIT
2. DIFFERENCE BETWEEN INSURABLE AND UNINSURABLE THEORY OF PROFIT
3. SOURCES OF UNCERTAIN RISK
4. UNCERTAINTY SPECIAL FUNCTION OF THE ENTERPRISE

• CRITICISM

1. IGNORES OTHER DETERMINANTS
2. UNREALISTIC ASSUMPTIONS
3. VAGUE THEORY
4. NOT APPLICABLE IN CASE OF JOINT STOCK COMPANIES
5. UNCERTAINTY IS NOT A SEPARATE FACTOR OF PRODUCTION

• SHACKLES THEORY OF PROFIT

1. EXTENDED KNIGHT THEORY OF UNCERTAINTY
2. EVERY ENTREPRENEUR PRODUCES GOODS ON THE BASIS OF SOME EXPECTATION RELATED TO MARKET
3. EXPECTATION ARE OF TWO TYPES:-
4. GENERAL EXPECTATION:- CHANGES RELATING TO THE ECONOMY
5. PARTICULAR EXPECTATION:- CHANGES IN THE FACTORS CONCERNING RELATING TO FIRM OR AN INDUSTRY

• NATURE OF PROFIT

1. CLASSICAL ECONOMIST MADE NO DIFFERENCE IN ENTREPRENEUR AND A CAPITALIST
2. ACCORDING TO MARSHAL MUST GET NORMAL PROFIT
3. PROF HAWLEY: DUE TO RISK
4. PROF WALKER:- NATURE OF THE RENT