Top 5 Theories of Profit – Explained!

Preparedness theory of phobias

Yes, it can improve performance, but its effects usually work in short bursts. In their paper, they stated that rewards do not create a lasting commitment - they merely, and temporarily, change what we do. Loading poll…. This is probably why most money-driven job roles offer regular, short bursts of theories of compensation income, such as weekly or monthly sales commissions. It keeps injecting that temporary boost in motivation and performance.

It therefore plays a very important role in performance. A modern theories of leadership years ago, the BBC compiled research about the impact of money on performance.

In one study, they found that the greater the financial reward becomes, the worse performance gets. You can see this in playing out in real life, as well as in the research lab. For example, EFC says that nearly half of all junior bankers quit within three years. They add that while there is lots of money to be made, the toll it takes on health and social life forces many people away from the job. The relationship between performance and compensation is indeed complicated.

Well, because everybody is different. Everybody is different. Take an agile approach, and learn how each of your people work.

Like engagement, physical health, and emotional wellbeing? Yes, you should talk to employees regularly to make sure they feel they are being paid fairly. And yes, offer performance-related payments and bonuses! But none of this is the be-all and end-all of performance. If the employee feels he is not being paid fairly for the amount of work he does in a day will result in lower productivity, increased turnover and high absenteeism.

The remuneration system should comply with three types of equity: 2. Usually, an individual with more experience gets high remuneration as compared to the fresher irrespective of the nature of a job. Agency Theory: This theory states that both the employer and the employee are the stakeholders of the company, and the remuneration paid to the employee is the agency cost. The employee will try to get an increased agency cost whereas the employer will try to minimize it.

Adler postulated that since we all have various issues and shortcomings as people, our personalities develop largely through the ways in which we do or do not compensate for or overcome these inherent challenges. Instead, he saw this phenomenon as a result of the fact theories of profit boys are encouraged to be assertive in life, and girls are discouraged from the very same thing.

Nietzsche, of course, considered the will to power the basic motive of human life. Smuts posited that, in order to understand people, we embarrassing essay to take them as summations rather than as parts, as unified wholes existing within the context of their environments both physical and social.

Here again Adler differed a great deal from Freud, who felt that the things that happened in the past e. Adler was essentially forward looking, seeing motivation as a matter of moving toward the future, rather than a product of our pasts driving us with only our limited awareness as to how and why. Both Vaihinger and Adler believed that people use these fictions actively in their daily lives, such as using the absolute belief in good and evil to guide social decisions, and believing that everything is as we see it.

Once Adler had fleshed out his theory on what motivates us as beings, there remained one question to be answered: If preparedness theory of phobias are all being pulled toward perfection, fulfillment, and self-actualization, why does a sizeable portion of the population end up miserably unfulfilled and far from perfectfar from realizing their selves and ideals?

Most children manage these inferiorities by dreaming of becoming adults the earliest form of striving for perfectionand by either mastering what they are bad at or compensating by becoming especially adept at something else, but for some children, the uphill climb toward developing self-esteem proves insurmountable.Thus profit has a tendency to appear, disappear and reappear.

Profits are caused by innovation and disappear by imitation. Innovational profit is thus, never permanent, in the opinion of Schumpeter. Therefore it is different from other incomes, such as rent, wages and interest. These are regular and permanent incomes arising under all circumstances. Profit on the other hand is a temporary surplus resulting from innovation. Schumpeter also explained his views on the functions of the entrepreneur. The entrepreneur organizes the business and combines the various factors of production.

But this is not his real function and this will not yield him profit. The real function of the entrepreneur is to introduce innovations in business. It is innovations which yield him profit. This theory concentrates only on innovation, which is only one of the many functions of the entrepreneur and not the only factor. This theory does not consider profit as the reward for risk-taking. According to Schumpeter it is the capitalist not the entrepreneur who undertakes risk. This theory has ignored the importance of uncertainty bearing which is one of the factors that determines profit.

Monopoly profits are permanent in nature while Schumpeter says that innovate profits occur temporarily. This theory has presented a very narrow view of the function of the entrepreneur.

He not only introduces innovation but he is equally responsible for proper organisation of the business. As such profit is not merely due to innovation.

It is also due to organizational work performed by the entrepreneur. As it is well known, every entrepreneur does not innovate and yet he must earn profit if he is to stay in business.

It is an incomplete theory because it has failed to explain all the career goals after graduation essay that influence profit. This theory was propounded by an American economist Prof. Frank H.

Knight agrees with Hawley that profit is a reward for risk-taking. There are two types of risks viz. According to Knight unforeseeable risk is called uncertainty beaming. Knight, regards profit as the reward for bearing non-insurable risks and uncertainties. He distinguishes between insurable and non-insurable risks. Certain risks are measurable, the probability of their occurrence can be statistically calculated.

The risks of fire, theft, flood and death by accident are insurable. These risks are borne by the insurance company. The premium paid for insurance is included in the cost of production. According to Knight these foreseen risks are not genuine economic risks eligible for any remuneration of profit.

In other words insurable risk does not give rise to profit. Some new firms enter into the market unexpectedly.

Theories of Profit in Economics

The existing firms may have to face serious theories of myth full paper from them. This will inevitably lower down the profit of the firms. This risk arises from the possibility of machinery becoming obsolete due to the discovery of new processes. The existing firm may not be in a position to adopt these changes into its organization, and hence suffer losses.

The government, in course of time, interferes into the affairs of the industry such as price control, tax policy, import and export restrictions, etc. This risk emerges from business cycles. These risks cannot be foreseen and measured, they become non- insurable and the uncertainties have to be borne by the entrepreneur.

According to this theory there is a direct relationship between profit and uncertainty bearing. Greater the uncertainty bearing the higher the level of profit. Uncertainty beaming has become so important in business enterprise in modern days, it has come to be considered as a separate factor of production. Theory of Change explains the process of change by outlining causal linkages in an initiative, i. The innovation of Theory of Change lies 1 in making the distinction between desired and actual outcomes and 2 in requiring stakeholders to model their desired outcomes before they decide on forms of intervention to achieve those outcomes.

Theory of Change can begin at any stage of an initiative, depending on the intended use. A theory developed at the outset is best at informing the planning of an initiative. Having worked theories of myth full paper a change model, practitioners can make more informed decisions about strategy and tactics. As monitoring and evaluation data become available, stakeholders can periodically refine the Theory of Change as the evidence indicates.

A Theory of Change can be developed retrospectively by reading program documents, talking to stakeholders, and analyzing data. This is often done during evaluations reflecting what has worked or not in order to understand the past and plan for the future. Theory of Change emerged from the field of program theory and program evaluation in the modern theories of leadership s as a new way of analyzing the theories motivating programs and initiatives working for social and political change.

The Roundtable's early work focused on working through the challenges of evaluating complex community initiatives. She argued that stakeholders of complex community initiatives typically are unclear about how the change process will unfold and therefore place little attention on the early and mid-term changes needed to reach a longer term goal.

She challenged designers of complex community-based initiatives to be specific about the theories of change guiding their work and suggested that doing so would improve their overall evaluation plans and would strengthen their ability to claim credit for outcomes that were predicted in their theory.

She called for the use of an approach that, at first glance, seems like common sense: lay out the sequence of outcomes that are expected to occur as the result of an intervention, and plan an evaluation strategy around tracking whether these expected outcomes are actually produced.

In the years that followed, a number of evaluations were developed around this approach, fueling more interest in the field about its value and potential application. Between -the Aspen Roundtable for Community Change led the dissemination and case studies of the Theory of Change approach, although still mostly applied to the field of community initiatives.

As the Aspen Roundtable concluded its leadership in the field and moved on to apply Theory of Change to such topics as structural racism, others expanded the visibility and application of Theory of Change into international development, public health, human rights and more [ citation needed ]. The visibility and knowledge of Theory of Change grew with the creation in of theoryofchange.

The Center for Theory of Change [7] houses a library, definitions, glossary and is licensed to offer Theory of Change Online by ActKnowledge [12] free of charge. In the early days of Theory of Change, Anne Kubisch and others established three quality the book essay criteria. Plausibility refers to the logic of the outcomes pathway. Does it make sense?

Are the outcomes in the right order? Are the preconditions each necessary and collectively sufficient to reach the long-term outcomes and ultimate impact?

Are there gaps in the logic? Feasibility refers to whether the initiative can realistically achieve its long-term outcomes and impact. Does the organization have adequate resources? Does it need partners? Does the scope, expectations, or timeline of the theory need adjustment? Testability refers chiefly to the indicators: Are they solid and measurable?

Will they yield sufficient information to evaluate the success of philosophy research paper initiative? Will they be convincing to necessary audiences? In addition to these three basic quality control criteria, ActKnowledge [12] has added another key criterion: Appropriate Scope. The outcomes pathway is a set of needed conditions relevant to a given field of action, which are placed diagrammatically in logical relationship to one another and connected with arrows that posit causality.

Outcomes along the pathway are also preconditions to outcomes above them. Thus, early outcomes must be in place for intermediate outcomes to be achieved; intermediate outcomes must be in place for the next set of outcomes to be achieved; and so on. The theory was propounded by Karl Marx who has written a famous book Das Capital.

According to this theory, the value of a product is determined by the units of labour involved in its production. The labour is not paid wage equal to his marginal productivity in a capitalist economy and less wage paid and workers are exploited.

On account of it the theory of surplus value of labour was propounded by Karl Marx. Such surplus value is called profit. The main cause of emergence of profit is the exploitation of workers by capitalists.

The profit rate will decline as it exploits workers and divides the society into the haves and the have-nots. It is the socialist society in which workers will be paid wages equal to their marginal productivity and the private profit will disappear.

Profit is the result of risk taking and the uncertainty bearing by an entrepreneur. Hence, profit is not due to exploitation of labour but it is a reward for risk taking and uncertainty bearing by an entrepreneur. It is the result of collective efforts of various factors of production, namely, land, labour, capital, entrepreneur and organisation. Edgeworth, Chapman, Stigler and Stonier and Hague have explained the determination of profit on the basis of marginal productivity of an entrepreneur as other factors of production are rewarded on the basis of their marginal productivities.

Demand curve of a factor of production is the marginal productivity curve of the factor. The demand for an entrepreneur is based on its marginal productivity curve while its supply depends upon the opportunity cost or transfer earning of an entrepreneur. Marginal productivity means an addition to total productivity when an additional unit of a factor of production is employed. We can determine the entrepreneurial ability by employing an additional unit of entrepreneur or withdrawing it.

The determination of profit on the basis of this theory can be preparedness theory of phobias with the help of the following diagram:.

MRP is the demand curve for entrepreneur and SS is the supply curve of entrepreneur.

Theory of preparedness

Both the curves cut each other at L point where the OE is the supply and demand for entrepreneurs. OS is the profit level which is equal to transfer earnings of entrepreneurs. In the long run under perfect competition this level of profit normal profit will remain as it is.

But during short period an entrepreneur may earn abnormal profit as well. When the supply of entrepreneurs is OE 1the entrepreneur is earning abnormal profit equal to SS 1 out of OS profit. This abnormal profit will disappear theories of compensation the long run when new firms will enter the industry under perfect competition and there will be normal profit only. The marginal productivity theory of profit has been criticised on the following grounds:.

But in actual practice we see that all the entrepreneurs are not identical in risk bearing, uncertainty, decision-making and organisation capacity, etc. Perfect competition is an imaginary and unrealistic market structure. But even Professor J. The generally accepted explanation for these above normal profits was that HM possessed cost advantages due to production efficiencies.

Economic Manuscripts: Theories of Surplus-Value, Chapter 16

The greater the risk, the digital essay ideas the potential for loss or for gain. Thus, a list of the fastest growing firms in the USA in indicated that twenty out of the top fifty were in the computer or computer-related industry.

Clearly, the fact that the average rate of return for these firms was in the neighbourhood of 20 percent is partly responsible for the large number of new computer firms. The risk-bearing theory considers only the risk inherent in operating the business. Loss from such business risks may be guarded against, at least partly, by modern theories of leadership and prudent management. The loss from such risks as fire, theft or liability suits, can be reduced or eliminated by insurance coverage and there is no reason why the entrepreneur should get an extra reward for assuming such risks.

A substantial risk was undertaken by G. Such instances can easily be multiplied. Numerous small business operators risk their capital, time, and effort in business enterprises each year for making a profit. Only few succeed in their endeavor and are rewarded with a profit; but most others theories of myth full paper not that fortunate and become bankrupt.

In pure competition there is no scope for making excess profit in the long run because of free entry. But there are risks that cannot be insured. These non-insurable risks relate to the outcome of price-output decisions made by the entrepreneur.

Due to uncertainty his decisions may prove to be right or wrong. What output he should produce, what price, higher or lower, he should fix for his output. In view of uncertainty about future conditions he cannot be sure whether, given his price and output decisions, he will make profits or losses.

Similarly, he has to bear risk as a result of his decision regarding mode of advertisement and expenditure made on it, regarding variation in product design. For taking all these decisions he has to guess about demand and cost conditions and there is always a risk of incurring losses as a result of his business decisions. No insurance company can insure the entrepreneur against business losses which result from his particular price, output, product design, and advertisement expenditure which fall upon him due to adverse changes that may take place in the economy.

Thus, it is non-insurable risks that involves uncertainty and gives rise to economic profits, positive or negative. Risk and uncertainty theory explains why super-normal profits that is economic profits are required by the firms who operate in such fields as petroleum exploration which involves relatively higher risks. Likewise, expected return on stocks has to be higher than the interest on bonds because of greater uncertainty and riskiness of investment in stocks of the companies.

Lastly, this theory recognizes that some firms are more efficient than others in terms of management of productive operations and successfully meeting the needs of consumers. Firms with average level of efficiency earns average rate of return. Firms with higher managerial skills and production efficiency are required to be compensated by above-normal profits i.

Therefore, this theory is also called compensatory theory of profits. All the theories of profits explained above have some element of truth.

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