GENERAL KNOWLEDGE

Detailed explanation-1: -If the actual reward is greater than the value of risk then the company will earn Profit. The risk-return tradeoff is an investment principle that indicates that the higher the risk, the higher the potential reward. If the reward is greater than risk, then a company is said to be earning profits.

Detailed explanation-2: -An economic theory proposed by professor and economist F.B. Hawley states that profit is a reward for risk taken in business. According to Hawley, the higher the risk in business, the greater the potential financial reward is for the business owner.

Detailed explanation-3: -A reward a businessman receives after bearing the risk of the business is known as profit. It is the money left over after covering all the costs of the business.

Detailed explanation-4: -A positive correlation exists between risk and return: the greater the risk, the higher the potential for profit or loss. Using the risk-reward tradeoff principle, low levels of uncertainty (risk) are associated with low returns and high levels of uncertainty with high returns.

Detailed explanation-5: -Theory of profit is the reward to an entrepreneur for the functions he renders in productive activity. Out of the income earned by the farm, land owner is paid rent, labourer is paid wage and capitalist is paid interest. Whatever is left over goes to the entrepreneur as profit.