Entrepreneurial profit and loss

Entrepreneurial profit and loss is profit or loss from market transactions calculated in monetary units. It is an increase (profit) or decrease (loss) in the estimated monetary equivalent of the net assets (total assets minus total liabilities) of an individual or business unit over a specified period of time or resulting from specified business transactions. Entrepreneurial profits result from a better-than-others ability to anticipate and satisfy market demands. This is done by directing the use or combination of the factors of production available on the market in such a way that the goods or services produced bring a higher market price than other products made with the same factors of production.

Entrepreneurial profits and losses emerge due to the following ever present market factors: (1) The uncertainty of future consumer demand; (2) The ceaseless changes in the demand for and supply of the various human and physical factors of production, which constantly create new opportunities for better adjusting production to anticipated future consumer wants; (3) The fact that all production takes time; and (4) Differences in entrepreneurial ability to foresee, at the time production must start, what the most urgent wants of consumers will be at the various future times when the available alternative processes of production might be completed.

Entrepreneurial profits and losses are society's appraisal of the contributions of individuals and other business units to societal welfare or satisfaction. Entrepreneurial profits and losses are the means that consumers use to shift the control of capital, and the direction of production, into the hands of those who have demonstrated their ability to serve consumers best.