Monday, August 24, 2009

Innovation Theory

In the dynamic change, which give rise to profits according to the dynamic theory of profits, Joseph Schumpeter has singled out for special treatment the part played by innovations. The daring and the dynamic entrepreneurs continue to hit at one innovation or an other, keeping their business a head of others and thus make hand some profits. According to Schumpeter, the principle function of the entrepreneur is to make innovations and profits are a reward for performing this important function.

Innovation may be defined as any new measure or new policy initiated by entrepreneur comes under innovation.

Innovation may be two types.

(a) Those innovations change the production function and reduce the cost of production

(b) Those innovations which stimulate the demand for product i.e. which change the demand or utility function.

In the first type are included the introduction of new machinery, improved production techniques or processes, exploitation of new source of raw material or a new and better organisational pattern for the firm. The second type of innovation are those which are calculated to increase the demand for the product by introducing a new product or new variety of an old product, new and more effective made of advertisement, discovery of new markets etc. success of any of these innovations brings a handsome increase in profits. Profits increase because either the cost of production is lowered or the product fetches a higher price.


0 Responses to “Innovation Theory”

Post a Comment

© 2013 Notes for Pakistan. All rights reserved.
Designed by SpicyTricks