In this article we will discuss about Taussig’s theory of profit. Also learn about its criticisms. According to rent theory supernormal profit is a surplus above the opportunity (transfer) cost of entrepreneurship. Therefore, it is comparable to economic rent which is also a surplus. According to the wage theory of profit, advanced by Taussig, profit is a type of wage. [...]
In this article we will discuss about the innovation theory of profit. Although profits arise due to frictions (i.e., time lags in market adjustments) and monopoly positions, the innovation theory, advanced by Schumpeter, goes one step ahead to suggest that profit is the reward for innovation. Profit is a necessary reward for inducing individuals to undertake the risks associated with [...]
We may now compare between rent and profit, for both involve some kind of surplus income of a factor. Economic rent is the difference between the actual earnings of a unit of an input and its supply price. The actual earnings of an input is the price that it receives for selling its services for a given period of time. [...]