Traditional theory of profit

1. Walkers theory of profit- according to this exceptional ability of entrepreneur can possess
profit as rent of ability

2. Clarks dynamic theory of profit-profit arise in dynamic situation

3. Hawley risk theory of profit-profit can maximize if risk is taken

4. Knights theory of profit-risk can be taken but it should be calculated

5. Schumpeter innovation theory of profit-

6. Monopoly is the source of profit

Baumol’s postulated maximization of sales revenue as an alternative to profit maximizing objective.

He attributes this objective to dichotomy between ownership management in large business
corporation. This dichotomy gives manager a opportunity to set their goals other than profit
maximizing goal. Given the opportunity manager choose to maximize their own utility function
according to Baumol “utility function is maximizing of sales and revenue

1. Manager salary and other benefits are more closely related to sales revenue than the profit
2. Bank and financial corporation look on sales revenue to give the loan
3. Trend in Sales revenue is a indicator performance of a firm
4. Increasing sales revenue enhance the prestige, reputation and perks of the manager while
profit goes to the owner
5. Manager find profit maximization are difficult objective to fulfill consistently over period of
time as profit can fractalated with changing conditions.
6. growing sales strengthen competitive spirit of firm whereas decreasing sales put survival of
firm at risk