Theory of Profit

  • Roy Harrod


This essay is closely related to those on imperfect competition which precede it. Its central purpose is to relate the theory regarding profit under imperfect competition to the general theory of profit. It seems that, since the elaboration of the doctrines of imperfect competition, some confusion regarding profit has arisen, anyhow in the minds of students. As an examiner, both in my own university and others, I have found the following tendency. Candidates, having set out some general theory of profit, for instance on the lines of Professor Knight’s classic analysis, are apt then to affirm that in addition to the profit arising for the reasons thus specified, there is another different kind of profit which occurs owing to the presence of monopolistic elements. I shall argue that this is quite erroneous, that monopolistic profit is not an additional profit, but part of the global profit in the economy that tends to secure an equilibrium between the demand and supply of uncertainty-bearing. It may happen that for a short period or a long one global profit in an economy exceeds that required to secure this equilibrium. But there is no necessary connexion between such a phenomenon and the presence of elements of monopoly profit.


Capital Gain Imperfect Competition Market Valuation Perfect Competition Monopoly Profit 
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© Roy Harrod 1972

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  • Roy Harrod

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