Meaning of Profit
We usually define profit in Economics as a reward for enterprise or for risk-taking or uncertainty bearing. But this definition docs not lend itself to any quantitative interpretation to enable us to settle the issue.
There are two technical difficulties in interpreting the concept of profit maximisation: First difficulty relateS to the time dimension. A businessman is said to maximise his profit for each accounting period, say a year. But this is !IOta good assumption, when dealing with a continuing business. Because a business can certainly ine~ease its profits in a particular year by utterly neglecting clearing all the stock of finished goods at the end of the period. The economist, therefore, as distinguished from the businessman, lays emphasis on the future in thc concept of profits. According to this interpretation. profits may he defined as the maximum dividend that a company “an pay without impairing its ability to pay samc dividend 10 subsequent years. The second difficulty about the concept of profits relates to the critic ion for evaluating Risk for which profit is a reward. Leaving aside the dispute regarding the interpretation of the term ‘profits’. let us try to see whether the doctrine of profit maximisation is a mere theory to be found only in textbooks on Economics ur whether the firms do actually try to maximise profits.