Knight theory of the profit, Managerial Economics

Assignment Help:

Frank H. Knight treated profit as a residual return to uncertainly profit. Obviously knight made a distinction between risk and uncertainly he divided risk into calculable and non-calculable risks. Calculable risks are those whose probability of occurrence can be statistically estimated on the basis of the available data. For example risk due to the fire, theft accidents etc, are calculable and such risks are insurable. There remains however an area of the risk in which the probability of the risk occurrences cannot be calculated. For instance, there may be a certain element of cost which may not be accurately calculable and the strategies of the competitors may not be precisely assessable. The risk elements of such incalculable events are not insurable. The area of the incalculable risk is the area of the uncertainty. It is in the area of uncertainty that business decision making becomes a crucial function of an entrepreneur. If his decisions are proved right by the subsequent events, the entrepreneur makes profit and vice versa. Thus according to the knight profit arises from the decision taken and implemented under the condition of the uncertainty. In his view the profit may arise as a result of decisions concerning k the state of market, decisions which result in the increasing the degree of the monopoly decisions with respect to holding stocks that holding stocks that give rise to windfall gains, and decision taken to introduce new techniques or innovations. 


Related Discussions:- Knight theory of the profit

Incremental profit, Electron Control, Inc., sells voltage regulators to oth...

Electron Control, Inc., sells voltage regulators to other manufacturers, who then customize and distribute the products to quality assurance labs for their sensitive test equipment

Resources, “Managerial economics involves use of economic analysis to make ...

“Managerial economics involves use of economic analysis to make business decisions involving the best use of a firm’s scarce resources” Explain the statement with suitable example.

Determine the perfectly competitive firms profit, 1. Suppose in a perfectly...

1. Suppose in a perfectly competitive industry the market demand and supply forces combine to produce a short-run equilibrium price of Rs 70. Suppose that a firm in this industry h

Development of skilled labour - external economies, Q. Development of Skill...

Q. Development of Skilled Labour - External Economies? As the industry grows training facilities for labour will increase. This helps development of skilled labour that would i

Concept of economies of scale, Q. Concept of economies of scale? Econom...

Q. Concept of economies of scale? Economies of scale refers to the cost advantages that a business attains because of expansion. 'Economies of scale' is a long run concept and

Total cost of factor combinations, Q. Total cost of Factor Combinations? ...

Q. Total cost of Factor Combinations? Here we try to find total cost of every factor combination and choose the one that has the least cost. Cost of every factor combination is

Optiimization, when firm can achieve optimization

when firm can achieve optimization

Demand forecasting, what is the importance of demand forecasting to manager...

what is the importance of demand forecasting to managers

Private cost and social cost, Why we need to distinguish between private co...

Why we need to distinguish between private cost and social cost?

Profit maximization, arguments in favour of traditional theory of profit ma...

arguments in favour of traditional theory of profit maximization

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd