MONOPOLY THEORY OF PROFITS

MONOPOLY THEORY OF PROFITS

               There is no doubt that profits arise from dynamic changes, innovations and from making a correct estimates of future economic conditions. Another view point of profit is that monopolistic and monopolistic competition in the market also give rise to profits, the firms under monopoly or monopolistic competition have great control over the price of the product. They are the price makers rather than the price takers. As such they raise prices by restricting the level of output and thus keep profit at higher level. Monopoly power, thus, is the basic sources of business profits.

          This Kalocki’s theory of monopoly profits has also been criticized. It is said that monopoly is no doubt an important cause and source of monopoly profits but it does not replace other theories. Monopoly power only supplements other theories.

CONCLUSION:

                 After discussing various theories of determination of profits, we come to this conclusion that all these theories are defective in one way or the other. The basic defect with these theories is that they particularize certain aspects of the function of an entrepreneur to the neglect of others, while the fact is that his functions are many-aid varied. The profit can arise due to monopolistic position of the entrepreneur or adoption of innovation or sheer chance or some of the factors stated above.

        Thus, we conclude that there is not a single theory of profit which gives as correct and comprehensive explanation of the nature and determination of the profits. Such a theory is yet to be propounded.

SHOULD PROFITS BE CONTROLLED

      If we look at profit from socialists point of view, we find that they believe in the abolition of profits. According to socialists, the value of the commodity is determined by the quantity of labour expended during its production. as all value is due to labour, so it must go to him and not to the entrepreneur. If the entrepreneur takes away something from the share of the labour, that is legalized robbery.

       In our opinion, if the entrepreneur is earning normal or abnormal profits by superfluous means, then they must be checked for instance, if an entrepreneur is paying less to the labour then their marginal net product or is bribing the legislature for passing tariffs legislation or is selling the goods in black market in order to maximize the difference between the total receipts and the total costs of production, then every sane person will condemn this behavior of the entrepreneur and will regard these profits as unjustified. Similarly, if an entrepreneur due to his monopolistic position charges too high price for his products and thus fleeces the customers, then that kind of profits can also not be defended and so they should be controlled.

         But if a businessman is earning just normal profits by honest means, then they can be justified in very respect. Profits are an incentive to the entrepreneur for undertaking, coordinating, directing and bearing the risks in a business. If the entrepreneur is not duly rewarded for the role which he performs in the process of production activities will come to a standstill. Profit are the payment for the services of an entrepreneur in production and so they must be paid to him. We thus, conclude that profits which an entrepreneur earns by unlawful means should altogether be monopolistic position or by sheer chances should be controlled and the normal profits which service as an incentive payment to the entrepreneur must remain in the business so that the productive of the economic organization may progress.