GENERAL KNOWLEDGE

Detailed explanation-1: -According to Knight, profit-earned by the entrepreneur who makes decisions in an uncertain environment-is the entrepreneur’s reward for bearing uninsurable risk. Knight also produced a monograph entitled The Economic Organisation, which became a classic exposition of microeconomic theory.

Detailed explanation-2: -Knight’s Uncertainty Theory of Profit was proposed by American economist Frank H. Knight in his classic book Risk, Uncertainty and Profit (1921). Knight asserts that entrepreneurs’ profits are directly related to uncertainty, which arises from unmeasurable risk. His theory is one of five major theories of profit.

Detailed explanation-3: -Knight, who believed profit as a reward for uncertainty-bearing, not to risk bearing. Simply, profit is the residual return to the entrepreneur for bearing the uncertainty in business.

Detailed explanation-4: -Hawley develops risk bearing theory which suggests that entrepreneur’s profit is reward of risk taken by him. However, Knight differentiates out uncertainty from risk and explains that profit is generated due to rise of uncertainty in the production process.