There are four factors of production. They are Land, labor, Capital and organization, which is also called entrepreneur.
According to the pricing theory of factors of production or theory of distribution, all the factors of production are paid according to their contribution on the total national product or equal to their marginal productivity. In this regard, rent, wages & interest respectively are paid as the reward to the factors of production Land, Labor & capital. Alike mentioned factors of production, entrepreneur also gets remuneration which is termed as profit. Hence, profit is the reward of entrepreneur.
Entrepreneur is the active factor of production. An entrepreneur collects the factors of production Land, Labor & capital in one place and uses them skillfully in the process of production. In this regard, entrepreneur has to perform entrepreneurial functions such as organizing & co-coordinating the other factors. So some economists argue that entrepreneur earns profit for his performing this function.
A part of the confusion in the theory of profit is due to the lack of agreement among economists about the true or proper function of the entrepreneur.
Some economists have described the use preneur as performing joint and, in separation functions of final risk bearing and final decision-making.
Alfred Marshall gave the first systematic explanation of the nature of profit in terms of demand and supply of entrepreneurs.
Walker looked upon profit as the reward of the entrepreneur with a superior ability than others. Hawley ascribed it to the entrepreneur’s risk- taking, the greater the risk undertaken, and the larger the profit according to him.
Mrs. Joan Robinson, Prof. Chamber line and Mr. Kalecki have associated profits with the imperfect competition and monopoly. Monopoly profits arise became a monopolist is able to restrict output and keep the price of his product much above the average cost of production.
Though these are various views of economists on the meaning of profit. Profit is defined as the residual income rescind after paying all the expenses in curved in the process of production. Profits can be divided into two parts cross profit Net profit.