According to modern economists, profit is also a price. Like the commodity price determination, profit is determined with the demand and supply forces. According to the modern theory of profit, profit is determined at the point where the demand for entrepreneurs is equal to the supply of entrepreneur.
Demand for Entrepreneur – Entrepreneur’* demand is made on the basis of its marginal productivity. Higher the marginal productivity of entrepreneur more demand of them will be there. The demand curve for entrepreneur slopes downward from left to right which shows that Marginal Revenue Productivity (MRP) of entrepreneurs declines with increase in their number.
Supply of entrepreneur: - Supply of entrepreneurs depends on the profit earned in the industry. Higher the rate of profit, more will be the supply of entrepreneur. Hence profit and supply of entrepreneurs are directly related and its supply curve slopes upward from left to right.
Profit rate determination: Demand and supply equilibrium: Profit rate is determined by the related forces of demand and supply of entrepreneurs. Normal rate of profit is determined at the point where demand for entrepreneurs becomes equal to their supply.
In fig., DD is entrepreneur’* demand curve and SS is the supply curve. Both the curves cut each other at point E where profit rate OP is determined.
