1. Innovation theory of profit

This theory regards profits as a reward to the entrepreneurs for carrying out innovations in the economy. It assigns the role of innovation not to a capitalist but to the entrepreneur who introduces something new in the industry. According to this theory, innovations can come from the following:-

(a) Introduction of a new product in the market

(b) Introduction of a new method of production

(c) The opening up of new markets

(d) The discovery of a new source raw materials

(e) The re-organization of an industry

2. The risk theory of profits

This theory regards risk taking as the main function to the entrepreneur and that profit is the residual income, which the entrepreneur receives because he assumes risks. The entrepreneur exposes his business to risk and in return, he receives a reward in a form of profit. Profit is-an excess of payment above the actual value of risks. Thus no' entrepreneur would be willing to take risks if he gets only normal returns. However, not everyone is capable of undertaking risks such that risk acts as deterrent to the supply of entrepreneurs.

3. The uncertainty bearing theory of profits
This theory regards profits as a reward for bearing non insurable risks and uncertainties in business. Some risks cannot be predicted due to the presence of uncertainty in them. Such unforeseen risks related to changes in price, demand, supply etc. No insurance company can insure against loss expected from such risks hence they are non-insurable. Therefore, profit is a reward for bearing the non-insurable risks and uncertainties in production.