Theory of Risk and UncertaintyThis theory of profit is propounded by frank H.

Knight who treated profit as a residual return because of uncertainly, and not because of risk bearing.

It is in the area of uncertainly which makes decision-making a crucial function for an entrepreneur. If his decisions prove to be right, the entrepreneur makes profit, Thus according to knight profit arises from the decisions taken and implemented under the conditions of uncertainly.

Dynamic TheoryThis theory is propounded by J.B. Clark According to

him, “Profits arise in a dynamic economy and not in static economy.”

A static economy and the firms under it, has the following features:

Absolute freedom of competition.Population and capital are stationary.Production process remains unchanged over time.Homogeneous goods.Factors of production enjoy freedom of mobility but

do not move because their marginal product in every industry is the same.

There is no uncertainly and risk. If there is any risk, it is insurable

All firms make only normal profit.

Dynamic TheoryA dynamic economy is characterized by the

following features:Increase in population.Increase in capital.Improvement in production techniques.Changes in the forms of business organization.The major function of entrepreneurs or managers

in a dynamic economy is to take the advantage of all of the above features and promote their business by expanding their sales and reducing their costs of production.

Innovation Theory of ProfitTo explain the phenomenon of economic

development and profit, Schumpeter starts from the state of a stationary equilibrium, which is characterized by the equilibrium in all the spheres. Under these conditions stationary equilibrium, the total receipts from the business are exactly equal to the cost. This means that there will be no profit.

Innovation Theory of ProfitThe profit can be earned only by introducing

innovations in manufacturing technique and the methods of supplying the goods innovations may include the following activities.

Introduction of a new commodity or new quality goods.

Introduction of a new method of production.Introduction of a new market.Finding the new sources of raw material.Organizing the industry in an innovative manner

with the new techniques.