Why is the income of an entrepreneur residual in nature? Discuss any three functions of an entrepreneur.
Income of an entrepreneur is residual in nature as entrepreneur bear risk and reward of risk is profit. Profit is income remaining after deducting all the direct and indirect expenses.
Functions of an entrepreneur -
(i) Risk bearing functions - Every business involves some amount of risks. The production of goods and services is always related to future estimated demands. The future demand is uncertain and unpredictable because it is influenced by changes in fashion, taste, price structure, Government policies, etc. Since this unpredictable task is undertaken by the entrepreneur, he has to bear the risk. If his estimations prove to be wrong, in the entire business sphere, no other factor of production shares the loss incurred by the entrepreneur.
(ii) Originating - The entrepreneur conceives new ideas, new products and new processes. He also develops new techniques with a view to avail to better opportunities of maximizing profitability in the business. Thus, entrepreneur always looks for changes and modification in business to further improvement.
(iii) Policy making - He is the one who makes plans on which the whole organization runs. He holds regular meetings and makes guidelines and distributes the work.
Income of an entrepreneur is residual in nature as entrepreneur bear risk and reward of risk is profit. Profit is income remaining after deducting all the direct and indirect expenses.
Functions of an entrepreneur -
(i) Risk bearing functions - Every business involves some amount of risks. The production of goods and services is always related to future estimated demands. The future demand is uncertain and unpredictable because it is influenced by changes in fashion, taste, price structure, Government policies, etc. Since this unpredictable task is undertaken by the entrepreneur, he has to bear the risk. If his estimations prove to be wrong, in the entire business sphere, no other factor of production shares the loss incurred by the entrepreneur.
(ii) Originating - The entrepreneur conceives new ideas, new products and new processes. He also develops new techniques with a view to avail to better opportunities of maximizing profitability in the business. Thus, entrepreneur always looks for changes and modification in business to further improvement.
(iii) Policy making - He is the one who makes plans on which the whole organization runs. He holds regular meetings and makes guidelines and distributes the work.
