Innovation Theory of Profit by Prof. Schumpeter | Innovation | Educational video | Bcom | BBA

Описание: Innovation Theory of Profit :
The innovation theory of profit developed by Prof. Joseph A. Schumpeter is more or less similar to the dynamic theory of profit given by Clark.
Prof. Schumpeter also believes that profits arise due to dynamic changes in the society but instead of the five 'generic changes' mentioned by Clark, he explains profts in term of 'innovations' in the productive process. According to Schumpeter, the main function of the entrepreneur is to introduce innovation in the economy and profits are a reward for performing this function. He has used the word innovation in a very wise sense. Any new measure or policy adopted by an entrepreneur to reduce his cost of production or to increase the demand for his product is an innovation. Thus, innovations include the introduction of a new machinery, new technique of production, exploitation of a new source of raw material, new and better method of organisation, introduction of new product, a new variety or design of the product, new method of advertisement, discovery of new markets etc.

If an innovation proves successful, that is, if it achieves the aim of either reducing the cost of production or increasing the demand of the product, it will give rise to profits.
The main purpose of introducing innovations by the entrepreneur is to earn profit. Profit, therefore, is the cause of innovations and if innovations prove to be successful, he will earn profits. Thus, profit is both the cause as well as the effect of innovations.

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